I think I initially misunderstood what makes TermMax interesting.
“Fixed-rate borrowing” sounds like a simple alternative to variable-rate lending. But the more I look at it, the bigger change seems to be when you know the cost of capital.
With a variable rate, the liability can change while the position is already open.
You might know how much you are borrowing, but you don't necessarily know what that financing will cost later.
TermMax approaches this differently by using fixed-rate, fixed-term positions.
That means two important inputs are known before the position starts:
the borrowing cost + the maturity.
For someone deploying capital, that changes the calculation.
Instead of building a strategy around an estimated future funding cost, you can evaluate the position against a defined financing expense.
But there is an important trade-off here that I don't see discussed enough.
Rate certainty doesn't remove risk.
It basically moves part of the uncertainty somewhere else.
If the term ends while the strategy still needs financing, rollover becomes important. And if market conditions change before maturity, the flexibility of a fixed-term position can matter just as much as the certainty of its rate.
So I don't think the real question is:
“Are fixed rates better than variable rates?”
It might be:
For which strategies is knowing the financing cost upfront worth giving up some flexibility?
That is where I think TermMax's fixed-rate infrastructure gets interesting.
#termmax @TermMax
“Fixed-rate borrowing” sounds like a simple alternative to variable-rate lending. But the more I look at it, the bigger change seems to be when you know the cost of capital.
With a variable rate, the liability can change while the position is already open.
You might know how much you are borrowing, but you don't necessarily know what that financing will cost later.
TermMax approaches this differently by using fixed-rate, fixed-term positions.
That means two important inputs are known before the position starts:
the borrowing cost + the maturity.
For someone deploying capital, that changes the calculation.
Instead of building a strategy around an estimated future funding cost, you can evaluate the position against a defined financing expense.
But there is an important trade-off here that I don't see discussed enough.
Rate certainty doesn't remove risk.
It basically moves part of the uncertainty somewhere else.
If the term ends while the strategy still needs financing, rollover becomes important. And if market conditions change before maturity, the flexibility of a fixed-term position can matter just as much as the certainty of its rate.
So I don't think the real question is:
“Are fixed rates better than variable rates?”
It might be:
For which strategies is knowing the financing cost upfront worth giving up some flexibility?
That is where I think TermMax's fixed-rate infrastructure gets interesting.
#termmax @TermMax
