Fixed Income Trading, Investing and Hedging

Day One

10.00 - 10.15 Welcome and Introduction

10.15 - 12.45 Introduction to Bond Trading and Investing

• A Framework for Assessing Fixed Income Trading Strategies
• Overview of Bond Trading and Hedging Tools

Trading the Yield Curve

• Brief Review of Yield Curve Analysis
• Repo Trading and “Tailing”
• Margin Trades
• Yield Spread Trades
• Curve Flatteners
• Curve Steepeners
• Dumbbells/Bullets
• Barbells
• Butterflies
• Pure Duration Bets
• Exercises

12.45 - 13.45 Lunch

13.45 - 17.00 Portfolio Strategies

• Portfolio Barbells
• Portfolio “Butterflies”
• Credit Barbells
• Immunized Portfolios
  • Traditional immunization (single-factor)
  • Multifactor-immunization
• Strategies Based Upon “Key Rate Duration”
• Laddered Portfolios
  • Why laddered portfolios can outperform other bond strategies
  • Building a portfolio of bonds with staggered maturities
  • Maintaining the ladder through reinvestments
• Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Arbitrage and Relative Value Strategies

• Identifying and Exploiting Arbitrage Opportunities through “Cheap/Rich” Analysis
• On-the-Run/Off-the-Run Trades
  • Case study: LTCM
• Sector Switches
  • Domestic and international
• OA Analysis and Mortgage Bond Arbitrage
• Convertible Arbitrage

Currency Hedged Strategies

• Sources of Return on Foreign Bonds
• Unhedged Foreign Bond
• Cash Flow Hedged Foreign Bond
• Present Value Hedged Foreign Bond
• Cross Hedged Foreign Bond
• Proxy Hedged Foreign Bond
• Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Investing in Bond-Backed Structures

• Treasury Strips
  • “STRIPS” and “RECONS”
• Mortgage Strips
  • IO/PO strips
  • Known collateral strips
  • TBA strips
  • Story strips
• Collaterized Mortgage Obligations
• Inverse Floaters
• Collaterized Bond Obligations
  • Balance sheet CBO’s
  • Arbitrage CBO’s
  • Credit correlation trades
• Exercises

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Using Derivates for Fixed-income Trading, Investing and Hedging

• Advantages and Disadvantages of Using Derivates
• Using Futures in Bond Trading and Hedging
  • Outright trades and basis trades
  • Calendar spreads (straddles)
  • Intermarket spreads
  • Hedging single positions and portfolios
  • Dynamic portfolio hedging
• Using Options in Bond Trading and Hedging
  • Directional and volatility trading
  • Using “Quanto” options to hedge dynamic currency risk etc.
• Using Swaps and other Derivatives
  • Creating synthetic, capped and floored cash flows
• Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Investing in Corporate and Emerging Market Bonds

• Investment Grade vs. High-Yield Bonds
• Understanding the Credit Risk of Corporate Bonds
• Credit Spreads and Credit Curves
• Calculating the Fair Credit Spread
• Using Asset Swaps and Credit Derivatives
  • Hedging or leveraging credit risk
  • Shorting credit risk
  • Creating synthetic corporate bonds
• Investing in Distressed Debt
• Investing in Emerging Market Bonds
  • Opportunities, risks and strategies
• Exercises

Evaluation and Termination of the Seminar