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I'm looking for something that might be considered the 'Bible' of fixed income.

Ideally it would contain everything from the basics of PV and discounting cash flows all the way up to some of the most complicated instruments, such as cross-currency basis swaps, although I understand that this may have to cover two books, such as 'An Intro to Fixed Income' and 'Further Fixed Income', or 'Advanced Fixed Income'.

Thanks.

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  • $\begingroup$ Frank J Fabozzi has been a big name in Fixed Income for years. amazon.co.uk/dp/B000SBTWB4/… $\endgroup$
    – S Meaden
    Oct 18, 2017 at 13:46
  • $\begingroup$ Brigo's & Mercurio's is definitely a reliable reference on the quant side. For a more conceptual point of view, Veronesi's is pretty popular (it was my Fixed Income textbook during my time at b-school) and I found it pretty good. See @Helin Gai's answer. $\endgroup$
    – Daneel Olivaw
    Oct 18, 2017 at 17:07
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    $\begingroup$ a very recent book written by a Barclays FI trader is "Pricing and Trading Interest Rate Derivatives: A Practical Guide to Swaps". [tradinginterestrates.com] It gives some new insights and clear instructions on aspects I have never seen in the other books. $\endgroup$
    – Attack68 ♦
    Nov 4, 2017 at 20:19

6 Answers 6

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If I were to recommend one, it would be:

  • Bruce Tuckman's Fixed Income Securities. This is by far my absolute favorite. It is extremely well written and discusses complex concepts in very easy-to-understand terms. Tuckman is both an academic and a practitioner (Salmon/Credit Suisse/Lehman/Barclays), so the book takes great care in addressing many real-life considerations of fixed income trading/investing that other books either gloss over or ignore. The book is also filled with excellent trading examples. (I should mention that I prefer the 2nd edition to the 3rd edition, which in my mind has a more logical organization of the material, although you'd miss out on modern topics such as multi-curve construction. I also recommend that you search around for research notes Tuckman wrote at Lehman, which are timeless master pieces for thinking about different concepts/strategies.) (Disclosure: I don't know the guy, but I clearly admire his intellect.)

Tuckman's book is more or less oriented toward undergrads/MBAs/practitioners, so it does not rigorously address topics that require a lot of stochastic calculus. For a more rigorous (and yet not esoteric) treatment, my favorite is

  • Pietro Veronesi's Fixed Income Securities: Valuation, Risk, and Management. This is another masterfully written book that blends theory and practice very well. It covers everything you'd expect, from discounted cash flows to interest rate modeling in continuous time. It is also very practitioner friendly, with step-by-step guides to implementing all the models. This title strikes a perfect balance between mathematical rigor and accessibility, and is used by many MFE programs from what I heard.

Other references:

  • Siddhartha Jha's Interest Rate Markets: A Practical Approach to Fixed Income is an excellent reference for fixed income strategy, written by a trader/strategist. It uses very little math, but discusses many real-life trading strategies. You can learn a lot of ideas not usually covered in mainstream textbooks.
  • Damiano Brigo and Fabio Merccurio's Interest Rate Models is, for a long time, the bible for fixed income quants. It provides detailed coverage of many interest rate models and their implementations. In my mind, it is almost certainly not a title for beginners, but it's an invaluable reference for those in quantitative roles.
  • Leif B. G. Andersen and Vladimir V. Piterbarg's Interest Rate Modeling, which comes in three volumes, represents the state of the art and is widely considered the new bible(s). Like Brigo & Merccurio, these are best treated as reference books rather than textbooks.
  • Depending on which track you go down, there are also "bibles" for specific areas of fixed income. For example, "The Treasury Bond Basis" is the bible for bond futures traders; "Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities" is the definitive guide to the MBS market, etc.
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  • $\begingroup$ Excellent answer, thanks. I just spent 3 weeks as part of a summer internship on an interest rates desk and I'm going to be starting on an interest rates trading desk in a year, so my aim in finding these books is to essentially keep on top of what I've learnt already and to be well-equipped with knowledge of the market and the products when I start. Based on this, which two books would you strongly suggest from your list? $\endgroup$
    – ODP
    Oct 18, 2017 at 19:55
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    $\begingroup$ @ODP If your job is rates trading, not rates modeling, then go w/ Tuckman and Jha. $\endgroup$
    – Helin
    Oct 18, 2017 at 19:57
  • $\begingroup$ What is the most recent edition of Jha? Just 1? $\endgroup$
    – ODP
    Oct 27, 2017 at 14:07
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    $\begingroup$ I second "the treasury bond basis". What reads like a book from the stone age gains importance with every passing day!! $\endgroup$
    – vanguard2k
    Jan 12, 2018 at 10:47
  • $\begingroup$ I second the recommendation for Pietro's book -- I was his student last fall when he taught from that book $\endgroup$
    – user217285
    Mar 23, 2018 at 3:35
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The Fixed-Income bible is definitely this one:

Damiano Brigo, Fabio Mercurio. Interest Rate Models - Theory and Practice

It is a 1,007-pager covering a large range of topics including:

  • Basic definitions and no-arbitrage pricing
  • Short rate models
  • Market models
  • Volatility smile for fixed income instruments
  • Exotic payoffs
  • Inflation and credit-linked instruments
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  • $\begingroup$ actually which edition would you recommend ? $\endgroup$
    – NegativeJo
    Oct 23, 2017 at 19:28
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    $\begingroup$ because I have now good (at the time, horrible) memories of working with this book back in 06... sure things have improved. as well as the state of the art. Hopefully or I fear for FI quants :) $\endgroup$
    – NegativeJo
    Oct 23, 2017 at 19:29
  • $\begingroup$ @NegativeJo I work with the 2nd edition, printed in August 2, 2006. $\endgroup$
    – JejeBelfort
    Oct 24, 2017 at 7:22
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To add some titles that haven't been mentioned:

Interest Rate Swaps and Other Derivatives by Howard Corb. Excellent - and comprehensive - overview from a former rates salesperson at a bulge bracket bank

Pricing and Trading Interest Rate Derivatives: A Practical Guide to Swaps by J Hamish M Darbyshire

Fixed Income Relative Value Analysis, + Website: A Practitioners Guide to the Theory, Tools, and Trades by Doug Huggins and Christian Schaller. If you're going to be on the sellside in rates trading, I think this might be particularly useful as a lot of the trade recommendations I see from desks are RV.

EDIT: for some topics - you mentioned CCBS - you might be better off with papers than books.

EDIT #2: The old Salomon papers "Understanding the Yield Curve" parts 1 through 7 are still worth reading. They used to be publicly available online; not sure if that's still the case.

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@JejeBelfort 's answer suggests a good book if you are interested in the stochastic modelling side of the fixed income world. I also really liked Musiela and Rutowski's "Martingale Methods in Financial Modelling" for this. Though not purely focussed on fixed income it has 5 chapters devoted to the topic. One thing that I liked about it is that it is relatively self-contained and requires only the basics of stochastic analysis.

Both of these books are relatively technical though and don't cover things like present value and discounted cash-flows, which you are asking for in your question. I would thus suggest you have a look at Sundaresan's "Fixed Income Markets and Their Derivatives". This book starts from zero and covers a wide range of fixed income products as well as the institutional settings. It is often used as a one-semester textbook for an advanced undergrad course.

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  • $\begingroup$ The latter of your suggestions sounds like the one I am looking for $\endgroup$
    – ODP
    Oct 18, 2017 at 11:03
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Prior to starting on a high yield trading desk, I was asked not to show up until I read and internalized "Inside the Yield Book." I now understand why. It is not prescriptive as most texts on the subject, rather it helps to build intuition from the ground up.

https://www.amazon.com/Inside-Yield-Book-Classic-Analysis/dp/111839013X

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To complement Helin's excellent answer, there is a somewhat under-the-radar fixed income book that covers a broad swathe of material, contains a lot of concrete examples worked out in detail and, perhaps more importantly, includes a section on fixed-income portfolio management that is missing from most textbooks: Fixed-income securities: Valuation, Risk Management and Portfolio Strategies by Lionel Martellini et al.

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