Fixed Income Markets II
Understand core concepts of the fixed income marketplace including the banking system, interest rates, and the yield curve - applying trading desk psychology and current market conditions.
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Module 1: Yield calculations
- Yield vs. return vs. interest rate
- Nominal yield
- Current yield
- Real yields
- Price and yield
- Yield to maturity
Module 2: Duration analysis
- Definition
- Calculation - explained
- Interpretation
- Limitations/advantages
Module 3: Modified Duration
- Application
Module 4: Yield analysis
- Impact of interest
- Sources of return
- Time value of money
- Measuring returns
- Re-setting the reinvestment rate
Module 5: Value of fixed income securities
- Yield as a value measure
- Yield to maturity - components
- Yield to maturity - assumptions
- Horizon analysis
Module 6: Bond pricing calculations of dollars
- Per bond basis
- Total principal
Module 7: Value as a basis point
- Definition
- Calculation
- Factors influencing price volatility
Module 8: Yield curves
- Definition of a yield curve
- Determinants of shape of yield curve
- Shape of yield curve and market expectations
- Spreads between yield curves
Module 9: The rating services
- Moody's
- Standard & Poor's (S&P)
- Fitch Investor's Services (FITCH/IBCA)
- External research analysis firms
- Research departments
Module 10: Uses for the ratings
- Ratings reflect the probability of timely payment
- Judgment - qualitative and quantitative
- Collective judgment approach
- Rating equality between rating agencies
- Compensation for rating services
Module 11: Various indenture provisions
- Call provisions
- Put provisions
- Sinking fund provisions
- Refunding
- Prefunding
Module 12: Additional security considerations
- Covenants of the obligation
- Third party guarantees
- Insurance or collateral
Module 13: Application/interpretation of ratings
- Investment decisions
- Comfort levels
- Short term securities vs. long term securities
Module 14: Contingent credit risk
- none
Module 15: Trading environment
- Market areas
- Market players
- Organized exchanges
- Types of trades
- Trading conventions
Module 16: General obligation bonds
- Limited vs. unlimited tax
- Issuance limitations
- Voter approval
- Statutory limitations
Module 17: Revenue bonds
- Characteristics
- Payable from revenues
- No debt limitation
- Sources of revenue
Module 18: Other bonds
- Special tax housing bonds
- Lease rental short terms
- Moral obligation
- IDB and PCR
- Double barreled
Module 19: Primary market
- Structures of a borrowing
- Underwriting process
- Distribution tiers
- Syndicate restrictions
- Legislative restraints
Module 20: Secondary market
- Trading characteristics
- Trading desks
Module 21: Corporate bond general characteristics
- none
Module 22: Classifications
- Public utilities
- Transportation
- Industrials - catch all
- Banks and finance companies
- International or Yankee issues
Module 23: Corporate debt maturity
- none
Module 24: Interest payment characteristics
- Fixed income or rate bonds special payment
- Participation bond profits or asset appreciation
- Income bond contingent on sufficient earnings
- Zeros as a corporate vehicle
Module 25: Types of bonds
- Secured
- Unsecured
Module 26: Unsecured
- Debenture bonds
- Subordinated debenture
Module 27: Security for bonds
- Real property using a mortgage
- Personal property - may be pledged
- The type of security or lack of is usually indicated in title of the bond issue
Module 28: Secured bonds
- Mortgage bond
- Collateral trust bond
- Equipment trust certificates
Module 29: Convertible securities
- General overview
- Issuer's position
- Investor's advantages/disadvantages
- Terminology
- Determining various relationships
Module 30: Preferred stock
- General specifications
- Issue types and issuers
- Terms and features
- Fixed rate or variable
- Special features
Module 31: Structured products
- Credit linked notes
- Collateralized debt obligations
- Collateralized loan obligations
- Collateralized bond obligations
- Synthetic CDOs
Module 32: Risks of credit derivatives
- Credit
- Market
- Liquidity
- Legal
- Operations
Module 33: Typical asset movement scenarios (swaps)
- Riding the yield curve
- Substitution swpas (primary vs. secondary)
- Inter-market spread
- Rate anticipation
- Tax swapping
Module 34: Asset holding
- Long term investing view
- Short term investing view
- Volatility
- Return over time
Module 35: Trading strategies
- Transition from high to low yields
- Transition from low to high yields
Module 1: Hedging
- Buying and selling to market expectations
- Use of derivatives as cash substitutes
- Theory of hedging
Module 2: Portfolios and investing decisions
- none
Module 3: The investment management process
- Setting investment objectives
- Establishing investment policy
- Selecting the portfolio strategy
- Selecting the assets
- Measuring and evaluating performance
Module 4: Overview of fixed income portfolio management
- Historical perspective
- Sources of return
- Horizon and yield curves
Module 5: Overview of risks associated with fixed income securities
- Bond specific
- Portfolio risk characteristics
Module 6: Portfolio management strategies
- Bond management techniques
Module 7: Active portfolio management
- Overview of the active portfolio management process
- Other strategies or tactics
- Examples of active portfolios
Module 8: Passive portfolio management
- Indexed bond funds: investing in the fixed income market
- Bond immunization: safe planning for future needs
- Dedicated portfolios: secure income to cover payouts
- Cash flow matching
Module 9: Case studies for fun
- Barings Bank Quick study in bad management and supervision
- Orange County
- Daiwa Bank
- Long Term Capital Management
Module 10: Accrued interest
- Standard payment date (6 mos./dtd date)
- Accrued interest calculations
- Relationship of accrued interest and yield
Module 11: The treasury and money market
- none
Module 12: Overview of the money market
- Function of the money market
- Characteristics
- Location of market place
- General description
- Participants
Module 13: The Federal funds market
- Importance of Federal funds
- Defined as a security
- Methods of Federal funds exchange
Module 14: Types of money market instruments
- T bills
- Negotiable and jumbo certificates of deposit
- Commercial paper
- Banker's acceptances
- Repurchase agreements and reverses
- Municipal short term instruments
Module 15: U.S. government markets
- Origin of the U.S. debt markets
- OTC market
- Principal business
Module 16: Specifications
- Size
- Structure
- Volume
- Spread narrower than other markets
- Tax implications
- Depository system
- Participants
Module 17: T Bills
- Size qualifications
- Discounting and calculations
- Maturity structure
- Speciality bills
Module 18: T Notes
- Size qualifications
- Pricing and maturity structure
- Basic notes and auction cycles
- Specialty notes
Module 19: T Bonds
- Size qualifications
- Pricing and maturity structure
- Auction cycles
Module 20: Strip securities
- History
- Dealer created proprietary zero coupon certificates
- Group of primary dealers began to issue TRs
- Treasury announced STRIP PROGRAM
- Specifications
- Trading specifications
Module 21: Flower bonds
- none
Module 22: Primary market
- Closed auction - single rate auction
- Dutch auction - multi rate auction
Module 23: Secondary market
- Trading segmentation
- Trading day overview and week overview
Module 24: The municipal market
- Advantages to the issuer/borrower
- Tax considerations
- Features of municipal debt
- Legislative contraints
Module 25: Asset backed securities
- ABS support
- Credit enhancements
- Types of ABS other than mortgage
Module 26: History of the mortgage
- Traditional mortgage
- Government agencies
- Lenders
- Borrowers
- Insurance
Module 27: Types of alternative mortgages
- GPM
- ARM
Module 28: Formation of an MBS
- Originators
- Intermediaries
- Packing agencies
- Secondary market
Module 29: Pricing conventions
- Factoring
- Calculating principal amount outstanding
- Figuring invested dollars
Module 30: Module Yield determinants
- Half life
- FHA experience
- Speed
- Pre-payments
Module 31: Computing yield
- FHA experience
- PSA experience
- CPR
Module 32: Factors affecting paydown
- Convexity
- Economic
- Interest rate environment
Module 33: The CMO
- Packaging
- IO and PO strips
- WAC and WAM
- Tranches
Module 34: Credit Derivatives
- Markets participants
- Risks of credit derivatives
Module 35: Types of credit risk
- Credit default risk
- Credit spread risk
- Downgrade risk
Module 36: Credit derivatives conventions
- The basics
- Single name
- Default baskets
- Market terminology
- Conditions to payment
Module 37: Asset swaps
- Mechanics of an asset swap
- The asset swap - credit default swap basis
Module 38: Total return swaps
- Mechanics
- Pricing
Module 39: Credit default swaps
- Mechanics of single, portfolio, index and exotic CDSs
- Pricing