Glossary
Plain-language definitions of terms used in Asian Value Investor stories.
- Basis point
- Carry trade
- Federal funds rate
- PBOC backstop
- Perpetual futures
- Yield curve control
- Yield-curve inversion
Basis point
One hundredth of a percentage point. A move in a yield from 4.25% to 4.50% is 25 basis points.
Carry trade
A position funded in a low-yielding currency and invested in a higher-yielding one, to earn the interest gap. It loses money if the funding currency strengthens sharply, which can force many investors to close positions at once.
Federal funds rate
The interest rate at which U.S. banks lend reserves to one another overnight. The Federal Reserve sets a target range for it, and the effective rate is what the market actually records.
PBOC backstop
A market shorthand for the expectation that the People’s Bank of China will supply liquidity or policy support when markets or lenders come under stress. It is an expectation, not a formal guarantee, and its scale and timing are not published in advance.
Perpetual futures
A futures contract with no expiry date, common in crypto markets. A periodic funding payment between buyers and sellers keeps the contract price close to the spot price. Positions are usually leveraged, so small price moves can trigger forced liquidations.
Yield curve control
A central bank policy that targets the yield on a government bond of a chosen maturity and buys or sells bonds to hold it there. The Bank of Japan has used it.
Yield-curve inversion
A state in which short-term government bond yields are higher than long-term yields. The usual gauge is the 10-year yield minus the 2-year yield falling below zero. Inversions have preceded most U.S. recessions since the 1970s, but the lead time varies. The Recession Watch chart on the home page tracks this gap; see Data and methodology for how it is built.