Fixed Income

Pricing, Trading and Investing

Agenda Program Online
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Prague, NH Hotel Prague
Hybrid Training
Both classroom and online training available
Price for online training
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Attend this 2-day training course and learn about:

The makeup of the bond market: participants, motivations, different types of bonds and market conventions
The detailed pricing of bonds, from the basic yield-to-maturity approach to bootstrapping spot rates and default probabilities
P/L attribution on a bond position
Measuring the risk of a bond position and the popular risk metrics
Bond investing and trading strategies, yield curve positioning, liability-driven investment, credit and convexity plays
Bond-related derivatives, including bond futures, interest rate swaps and credit default swaps
Using derivatives alongside bonds in trading and investing strategies
Course description

This 2-day course covers a full spectrum of information on bonds and the bond markets. We begin with the basics and the common approaches to bond pricing, but the course heads smoothly from there into the deeper detail behind pricing bonds properly, including the inferring of default probability term structures and bootstrapping spot rate curves. Detail is always handled carefully, and explanations focus on the intuitive rather than the mathematical; explained from a market practitioner point of view.

Once pricing is understood participants will learn about the various approaches to understanding bond risk measurement and management. The classic risk metrics will be derived and discussed as well as the role of convexity in determining the bond yields. Participants will learn how bond investment can be tailored to suit market and yield curve views and how return-seeking and liability-matching is achieved.

The final section of the course introduces bond-related derivatives, futures, interest rate swaps and credit default swaps. The mechanics and pricing of these instruments is discussed and investment and trading strategies involving these derivatives are developed.

The course contains numerical examples and spreadsheet exercises to reinforce the technical learning, leaving participants with a first-hand understanding of the quantitative details.

Who should attend?

  • Bank money market, bond and derivative traders and salespeople
  • Investors – institutional investors, fund managers, private traders
  • Company treasury managers and staff, accountants, risk managers

Program of the seminar: Fixed Income

The seminar timetable follows Central European Time (CET).

09.00 - 09.10 Welcome and Introduction

09.10 - 12.15 The Bond Market and Bond Pricing

  • Bond markets and the participants
    • The rationale for bond issuance
    • Bond types – coupon, zero coupon, floating rate notes, callables
    • Government bonds versus corporate bonds – dealing with credit risk
    • Comparing bonds to bank loans
    • Equity versus debt – the investor choice
    • Bond market participants and their motivations
    • Liability matching and return seeking
  • Pricing bonds
    • Conceptually how do we value a financial asset?
    • Understanding discounting and the choice of discount rate
    • Yield to maturity, coupon, and price
    • The yield curve – what drives the shape?
    • The PV01 of a bond – what is it telling us and how can we use it?
    • Accrued interest and clean bond prices
    • Modelling re-investment risk
    • Spot rates and bootstrapping a spot curve
    • Calculating forward rates – what do they signify?
    • Incorporating credit risk – how do we price in the chance of default?
    • The concept of risk premium – the unquantifiable extra
  • Repo
    • Repo - the market for financing and borrowing bonds
    • What drives the repo rate?
    • Special versus general collateral – what’s the difference?
  • P/L attribution
    • Modelling P/L on a bond position through time
    • Attributing P/L to specific causes – funding, coupon carry, curve roll yield, clean price movement

12.15 - 13.15 Lunch Break

13.15 - 17.00 Bond Risk Measurement

  • Interest rate risk
    • How is interest rate risk generated on a fixed income position?
    • Measuring interest rate risk
    • The common risk metrics - Macauley duration, duration, modified duration, DV01
    • Calculating and contrasting risk metrics – which ones does investors and traders focus on and why?
    • How are the bond risk metrics a function of bond characteristics?
    • Risk bucketing and portfolio risk management
    • Convexity – the rate of change of duration
    • Calculation of convexity in different bonds – what drives the differences?
    • How is a convexity position paid for?
    • Comparing bonds of differing convexities – which characteristics effect the magnitude of convexity?
  • Credit risk
    • Differentiating credit risk from interest rate risk
    • Credit risk metrics – spread DV01/CS01

09.00 - 12.15 Trading and Investing Strategies

  • Investment strategies
    • Return seeking – buy and hold
    • Laddering – the benefits of building a bond ladder
    • Liability matching – the concept of immunisation
    • LDI – liability-driven investment
    • The limits of liability matching
  • Yield curve directional strategies
    • Parallel shift plays
    • Curve twisting – constructing steepeners and flatteners
    • Bond butterflies – betting on yield curve concavity
    • Sizing and maintain yield curve strategies and attributing P/L
  • Relative value strategies
    • Credit plays – capturing excess risk premium
    • Curve roll – capturing excess carry
    • On-the-run versus off-the-run – convexity plays and capturing the ‘new bond premium’

12.15 - 13.15 Lunch Break

13.15 - 17.00 Bond Derivatives

  • Bond futures
    • Mechanics of bond futures
    • How are bond futures priced?
    • Determining the cheapest to deliver bond
    • Implied repo and net basis
    • Cash versus futures arbitrage
  • Interest rate swaps
    • Mechanics and quoting conventions of swaps
    • How are swaps priced? What drives the swap rates?
    • Swap spreads – what drives the spread?
    • Creating asset swaps – synthetic floating rate notes
    • Asset swap trading opportunities
    • Cross-currency swaps
    • Using cross-currency swaps to currency hedge a bond and create synthetic assets
    • How to truly compare bonds across different currencies
  • Bond options
    • How do bond options work?
    • Pricing the bond option
    • Understanding the importance of volatility
    • Using bond options to express directional and volatility views
  • Credit default swaps (CDS)
    • Mechanics and conventions of the CDS
    • Theoretical CDS pricing
    • CDS trading strategies
    • CDSs versus asset swaps – the CDS-cash basis
    • Using CDS to create synthetic corporate bonds
    • Trading the basis – does a non-zero basis imply arbitrage?
    • CDS indices – iTraxx and CDX
    • Credit index trading
    • Tranched credit indices – the importance of correlation

Conclusion of the Seminar

Training catalogue in PDF
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