How to Trade Interest Rates with Pendle? A Beginner's Guide to Fixed-Income Strategies
The essence of trading interest rates on Pendle is buying PT (Principal Token) to lock in a guaranteed future yield, treating it as an on-chain "certificate of deposit". At maturity, PT can be redeemed 1:1 for the underlying asset, and the difference between the purchase price and the redemption value is your fixed income.
1. Prerequisite: Choose an underlying asset you are willing to hold
Markets on Pendle are built around specific yield-bearing assets, such as stETH (staked ETH), sUSDe (Ethena's stablecoin), etc. The first step is deciding which asset to use for this fixed-income strategy.
Two principles for selecting an asset:
You already understand the asset: Each market on Pendle has its own risks associated with the underlying asset (e.g., depegging, protocol smart-contract risk). If you don't understand it, don't touch it.
You are willing to wait until maturity: Pendle markets have specific maturity dates, such as "December 29, 2026". Between purchasing PT and maturity, your capital is in a "semi-locked" state (you can exit early, but the price will be determined by the market).
Common pitfall: Choosing the market with the highest yield without fully understanding the underlying asset. For example, the liquidity pools of some long-tail assets may be very shallow, causing PT prices to fluctuate wildly.
2. Buy PT: Lock in a fixed rate
Open the "Markets" page on the Pendle App (app.pendle.finance), find your chosen asset and maturity date. You will see two option boxes: "PT - Fixed APY" and "YT - Long Yield APY". Click the "PT - Fixed APY" box.
How to do it:
After clicking, enter the amount you want to invest. The system will display two key pieces of data: the amount of assets redeemable at maturity (e.g., invest 1 stETH, redeem 1.17 stETH at maturity) and the effective fixed APY (the annualized yield you are locking in).
Once confirmed, approve and submit the transaction.
What counts as completion: Once the transaction is successful, the assets in your wallet become PT. You can see your position and maturity date on the Pendle Dashboard.
Risk reminder: Pendle's smart contracts carry the risk of being hacked, and the underlying asset (e.g., stETH) itself also has depegging risk, though the probability is low. This is the trade-off for yield certainty; be aware of it before committing funds.
3. Hold to Maturity: Core Logic
After buying PT, the strategy enters its core phase: waiting.
The price of PT will gradually converge to the price of the underlying asset as time passes, reaching a 1:1 exchange at maturity. Your yield is not "paid out" on the maturity date; rather, it is realized through the "discount" at which you bought – you bought 1 PT-stETH for 0.94 stETH, and at maturity you can redeem it for 1 stETH; the 0.06 stETH difference is your profit.
What counts as completion: Keep your PT quietly in your wallet until maturity. Remember, once you've opened the position, avoid repeated trading to reduce the risk of judgment errors from market fluctuations.
4. Early Exit: Liquidity Option
Pendle has no lock-up period; you can sell your PT at any time.
Scenario A: You need cash urgently, or you find that the interest rate environment has changed and want to close the trade early.
How to do it: On Pendle's Trade interface, do the reverse operation and sell your PT. The price is determined by Pendle's AMM (Automated Market Maker), and like any token trade, there will be slippage and fees.
Scenario B: You notice that the market price of PT has risen considerably, potentially offering a higher profit if you sell early than holding to maturity. For instance, if the market expects future yields to drop significantly, people will rush to buy PT, driving up its price, and you can take profits early.
Key reminder: When exiting early, your final return depends on the market price of PT at that time. It may be higher or lower than the maturity payoff, and in extreme cases could even result in a loss. If the market expects the underlying asset to generate higher yields in the future, PT prices may decline in the short term.
FAQ
Q: Will the APY I locked in change after buying PT? No. Once you buy PT, your locked-in fixed APY is set. Changes in the APY displayed on the market only affect new positions, not yours.
Q: What is the relationship between "Fixed APY" and "Implied APY"? In numerical terms, Fixed APY equals Implied APY. Implied APY is the market's consensus on the future average yield of an asset, derived from the trading prices of PT and YT. When you buy PT, you are accepting this market consensus and turning it into your guaranteed return.
Q: Do I need to manually claim the yield at maturity? Yes. At maturity, PT does not automatically convert into the underlying asset. You need to go to the Pendle platform and manually redeem it (Redeem) to exchange PT for the underlying asset; only then are the earnings realized.
Next Steps
After completing the purchase, check the Pendle Dashboard to confirm your position status and maturity date. Then wait. If you are more aggressive, you can periodically monitor changes in the market's Implied APY and the Underlying APY. If the Implied APY is significantly lower than the Underlying APY, it means the market is "bearish on yield," and your PT price is often in an upward trend – you can consider whether to sell early and take profits.
