Course description
Fixed Income Markets and Analytics
Fixed Income (debt) markets are a very large, and essential, part of the financial market place.
This hands-on programme will equip you to be familiar with the structure of primary and secondary markets, government bonds, corporate bonds and derivative products. The course also covers all the “Bond Maths” building blocks of fixed income analytics – present value, discount factors, yield, yield curves, duration and convexity – and their applications.
The programme includes extensive practical exercises using Excel spreadsheets to ensure that participants can apply the learning immediately.
Suitability - Who should attend?
This course is designed for anyone who needs to learn about Fixed Income markets & products and who needs to learn about the analytical tools required to value and/or manage the risk of individual fixed income securities or of a fixed income portfolio. Additionally, this course is for anyone who wishes to gain a basic understanding of Interest Rate Derivatives and how to use them.
- Fixed Income sales and traders
- Fixed Income portfolio managers
- Bank Treasury, Insurance Company, Pension Fund and Asset Liability Management employees
- Central Bank and Government Funding managers
- Company finance executives and Capital Markets investment bankers
- Risk managers, finance, IPV professionals, auditors and accountants
Prior Knowledge
Basic understanding of Capital Markets at the level covered in extensive detail in the LFS Capital Markets Fundamentals course.
Outcome / Qualification etc.
Learning Objectives
- Gain familiarity with the terminology and workings of the Primary and Secondary markets for fixed income products
- Understand the details of the various debt products – money market instruments, government bonds, corporate bonds
- Learn the meaning and importance of – and how to calculate – the various analytical functions such as discount factors, present value, price, yield, yield curves, duration and convexity
- Learn how to calculate and manage risks associated with individual instruments or a fixed income portfolio
- Explore primary Interest Rate Derivative products – Futures and Interest Rate Swaps
At the end of the couse, participants will receive a certificate issued by LFS.
GARP & CFA Institute members are eligible for 24 CE/CPD credits.
Training Course Content
Day One
Primary Markets
- DCM and bond issuance
- Considerations for first time issuers
- Bonds vs. loans
- The issuance process – auctions vs. underwritten deals
- New issue terminology
- Bond types, structures and market conventions
- Types of bonds, MTNs
- Fixed rate bonds vs. FRNs
Secondary Market Pricing
- Coupon and Price
- Clean vs. dirty price
- Accrued interest calculations
- The most common daycount conventions, and converting between them
- Price versus yield
- The price/yield relationship intuitively
- Price vs. yield – the formal relationship
- Yield conversions for bonds of different payment frequency
- The price of liquidity
- On-the-runs vs. off-the-runs – is there an arb?
- Understanding the yield curve
- The various yield curves that we look at
- Drivers of shape and level
- Yields as spreads
- Quoting the yield as a spread – vs Govts or mid-swaps?
- The z-spread defined
- Asset swap spreads
Financing a Bond Position
- Mechanics of repo
- Drivers of the repo rate
- GC and special collateral
- Tri-party repo agreements
- Cost of carry and P&L
- Forward bond pricing and the implied repo rate
- P&L attribution – trading p&l, carry/funding, rolldown, pull-to-par
Workshop: Detailed analysis of a trading position financed on 1-week repo, analyzing the P&L and allocating P&L between ‘trading profit’ and carry/funding
Day Two
Bond Risk-Management
- Duration, convexity and risk
- Duration -- modified duration versus Macaulay duration
- Duration at the portfolio level
- DV01 defined
- Converting between DV01 and duration
- DV01 at the portfolio level
- Duration -- modified duration versus Macaulay duration
- Using DV01 in practice
- VaR calculations
- Risk limits
- Hedging
- Trade sizing
- Convexity
- Definition
- Why (and when) it matters
- Convexity as optionality / a volatility effect
Workshop: Analyse a duration-neutral butterfly/barbell portfolio designed to monetise mispriced convexity
Primary Market Pricing
- Bootstrapping the curve
- Discount curve, zeros and the par curve
- What is the ‘zero curve’ and why does it matter
- Pricing a new issue
- Market conventions for coupons and price
- ‘Coupon-stripping’ and arbitrage
Workshop: Bootstrap a Govt bond curve, and thereby correctly price a new issue
Bond Futures
- Mechanics of a bond future
- Detailed analysis of the EUREX 10yr Bund Future
- Initial and variation margin, daily MTM
- Rolling the position, roll P&L
- Settlement and delivery
- The eligible deliverables into the contract
- Conversion factors
- Economics of delivery – the cheapest-to-deliver
- Identifying the CTD – computing the ‘ implied repo’
- Basis trading
- Gross and net basis
- Hedging with futures
- Calculating the Futures DV01
Workshop: Detailed analysis of Jun23 contract on Eurex, compute implied repos and identify the CTD
Day Three
Corporate Bonds
- Understanding seniority and creditor claims
- The bankruptcy process and order of priority
- Historic default and recovery rates
- Pricing credit risk
- Spread, recovery rate and default probability
- The various credit spreads and how they are related
- CDS vs. cash-market spreads
- The role of the ratings agencies
- Why ratings and spreads can diverge
- Corporate bond issuance
- Investment grade and high-yield debt markets
- Pricing risky bonds
- Credit trading
- Spread DV01, CS01 and spread duration
- Spread duration at the portfolio level
- Hedging with CDS
- Hedge default risk or CS01?
- The CDS-cash basis, trading the basis
- Asset swaps
- Spread DV01, CS01 and spread duration
Workshop: Calculate the asset swap level of a corporate bond
Callable bonds
- How they work
- Structuring a callable, understanding the embedded optionality
- Terminology
- Pricing and risk
- Why is this market so important?
Course delivery details
Courses are delivered in the London classroom and live online via LFS Live in London, New York, and Singapore time zones.
Please contact LFS for more details.
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