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Flow Interest Rates: Common Products Versus Structured Rate Products

Article Quant Q&A · Author: Phil H
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Summary

The accepted answer explains “flow” interest rate trading as trading in standardized, liquid products that are relatively easy to value and trade frequently. Examples span sovereign and corporate bonds, overnight index swaps, interest rate swaps, caps, floors, and swaptions. The answer distinguishes these from harder-to-value structured products such as mortgage- and asset-backed securities, collateralized debt obligations, and collateralized mortgage obligations.

The answer also clarifies that “flow” describes the products rather than whether a role is proprietary or client-facing; both flow and non-flow products can be traded with clients. A second, downvoted answer instead interprets the phrase as floating interest rates, illustrating that the terminology can be confused. The document offers a concise industry usage explanation, not a formal classification: liquidity, valuation difficulty, and turnover are presented as broad characteristics, with no thresholds or market-specific qualifications.

Key ideas

  • Flow rate trading generally refers to liquid, frequently traded products that are relatively straightforward to value.
  • Government and corporate bonds, swaps, and standard rate options are examples of flow products.
  • Structured products such as mortgage-backed securities and collateralized debt obligations are described as harder to value and outside typical flow trading.
  • The term describes product characteristics rather than whether a trader works in a client-facing or proprietary role.

Tags

Fixed incomeDerivatives pricingMarket microstructure
Full text
# What is "Flow Interest Rates"?


# What is "Flow Interest Rates"?












Looking at quant roles I keep seeing 'Flow Interest Rates' or 'Interest Rate Flow' - what does this refer to?

## Answer by Matt Wolf (score 5, accepted)

https://quant.stackexchange.com/a/3606

The above posts are incorrect in that it has nothing to do with a distinction between prop trading or client facing trading.

Flow trading simply means that the underlying products are "commodity products" in the sense that they are easy to value, high turnover products. Thus rates flow trading involves the trading of cash sovereign government bonds, corporate bonds, overnight index swaps, interest rate swaps, all the way up to caps, floors, and swaptions. Those are rate flow products.

On the other side of the spectrum are "hard-to-value structures" that are not considered flow products, such as exotic derivatives, MBS, ABS, CDOs, CMOs,...

Please note that all products whether flow or not are products traded in client facing roles, thus my first comment that I disagree with Tal's earlier comment.

## Answer by Money (score -4)

https://quant.stackexchange.com/a/3615

Floating interest rate is the interest rate that private markets determine, based on demand and supply data. If the demand of a currency goes down, it leads to expensive imports, which leads an extra room for local jobs and services and so on. That is opposed to a fixed interest rate that is set and maintained by a government’s central bank.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.