Interest Rates

Interest rates set the discount rate for nearly every other asset, and the shape of the curve reflects central bank policy and market expectations for growth and inflation. This hub covers rate curves, central bank drivers and the swaps used to manage rate exposure.

How the market works

The yield curve plots the interest rate across maturities, from overnight to 30 years. Its front end is anchored by central-bank policy rates (the Fed, ECB, BoE), while the long end reflects the market’s expectations for growth, inflation and term premium — so the curve’s slope (steep, flat or inverted) is a core macro signal. Rate risk is managed largely through interest-rate swaps, which exchange fixed for floating payments and let borrowers and investors reshape their exposure without trading the underlying bonds. Since the retirement of LIBOR, floating legs reference risk-free overnight rates such as SOFR (USD), €STR and SONIA, published by central banks.

Major trade flows

Interest-rate derivatives are the largest part of the financial system by notional: total OTC derivatives outstanding were about US$846 trillion in mid-2025, of which interest-rate contracts are ~79%, with interest-rate swaps alone around US$550 trillion notional. Roughly 80% is centrally cleared through CCPs, a structural shift since the 2008 crisis that concentrates counterparty risk in clearing houses. The dominant flows come from banks, asset managers, insurers and corporates hedging funding and duration, plus the huge government-bond and repo markets that the curve prices — making central-bank policy the single biggest driver of activity.