A warrant whose value is linked to bond yields so that investors can take a view on the direction of interest rates without having to be fully invested in fixed-income securities. Expectedly, bond yields and interest rates move in opposite directions; as such, a warrant would become more valuable as yield decreases, and vice versa. These instruments can be benchmarked to any widely used index of interest rates such as the 30-year Treasury bond. For listed warrants, exchanges define the intrinsic value (change in warrant value, say, $0.10) for each one-basis-point move in bond yields. If the long bond yields drop below the strike yield, the intrinsic value increases at a rate of $0.10 per basis point drop. In contrast, as yields increase, intrinsic value depreciates at the same rate ($0.10 per basis point increase).

Typically, the market value of these warrants is above the intrinsic value. This reflects the time value associated with a warrant’s life remaining before expiration.