Bond Trading
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Module 1: Introduction
- Why bonds?
- Fundamental characteristics/ Features of bonds
- Risk and return characteristics; comparison to other asset classes
- Bond types:
- Government and Agency bonds
- Corporate bonds
- Domestic and offshore bonds
- Bond Structures:
- Fixed and floating rate bonds
- Option embedded bonds (callable, puttable, convertible)
- Asset backed securities (RMBS, CMBS, CDOs)
- Structured Products
Module 2: Bond Pricing and Measures of Return
- IRR-Discounted cash flow analysis
- Yield to Maturity (YTM) as a measure of return
- Shortcomings of YTM as a standard measure of return
- Alternative measures of return:
- Current Yield/Nominal Yield
- Total return, yield to call/put/worst
- Portfolio return. Estimation of bond portfolio yield
Module 3: Bond risk characteristics
- Measures of interest rate risk
- Duration, DV01 – measures of price risk
- Interest Rate Risk: Differentiating price risk, re-investment risk, rollover risk
- Duration properties of fixed and floating rate bonds
Module 4: Trading Applications of duration:
- Measuring position and portfolio risk
- Hedging – calculating hedge ratios
- Calculation of position ratios for relative value strategies
Module 5: Convexity
- Calculating and interpreting convexity
- Estimating the value of convexity and the relationship to interest rate volatility
- Positive and negative convexity: impact on bond values and yields
- Convexity in active portfolio management
- Calculating portfolio convexity (absolute and benchmark relative)
Module 1: Yield Curves – Modelling, Analysis and Forecasting
- Understanding and interpreting yield curves
- Yield curve theories
- The relationship of yield curves to the global macro-economic environment:
- Economic activity
- Fiscal and monetary policy
- Interpretation and forecasting yield curve movements:
- Parallel yield curve shifts
- Non-parallel curve shifts (steepening/flattening/barbell)
- Econometric forecasting models
- Benchmark yield curves
- Swap and government (risk-free) yield curves
- Yield curve modelling and construction
- Constructing spot rate (zero coupon) yield curves
Module 2: Active vs Passive Management: Fixed Income Benchmark Indices
- Fixed income market benchmarks
- Benchmark providers
- Benchmark types:
- Government and Sovereign bond indices
- Corporate indices
- ABS/MBS indices
- Emerging market bond indices
- Basics of Index construction (weighting/re-investment and index changes)
- Alpha – generating active (excess) returns:
- The active management decision set for fixed income portfolios:
- Interest rates
- Yield curve
- Cross country
- Credit
- Sector analysis/Rotation
Module 3: Current Trading Technology – Executing the Trade
- “Buyside” sponsored trading Platforms
- Characteristics of convertible
- Brokers Market