Questions tagged [bond]

A bond is a fixed-income instrument generating cash flows at some specific dates in the futures. These cash-flows depend on the interest rate of the bond, which can either be fixed or variable. It is a debt instrument acting as a loan made from the buyer to the seller.

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22 views

Total Return Swap on Single Govt Bond Marked to Market Calculation

Looking to understand how to value a TRS on single 10y UST during the life of the trade. Here is an example of trade parameters. 10mm constant notional 1-year maturity I am performance leg payer / ...
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27 views

Where to find Historical price data (csv preferable) for global Gov bonds and markets. All dollar denominated?

I'm doing a lengthy backtest on a certain portfolio and i've managed to get FTSE 100 data going back to 05-30-1990, where could I find data for global Government bonds going back to that date? A csv ...
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41 views

zero coupon duration and convexity

For the same duration, lower coupon bond shows smaller convexity. Meanwhile the smaller coupon bond has higher convexity and higher duration and therefore higher interest risk How to reconcile the ...
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10-year-equivalent DV01 [closed]

How do I go about calculating the 10-year equivalent DV01 of a bond and how would the 10-year equivalent DV01 differ (larger/smaller/magnitude) from the regular DV01 for, say, a 1y, 5y or 20y bond?
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Coupon Adjusted Spread vs Z-Spread

Hi so I'm trying to figure out how to adjust for the coupon value in the Z-Spread of a given bond. For example we can take UKRAIN 9.75 11/28. The coupon is 9.75 which is quite a bit higher than the ...
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55 views

Cauchy-Euler ODE with indicator function in coefficient

Consider the following Cauchy-Euler ODE, which is in particular the asset pricing equation for a (perpetual coupon defaultable) bond: $$\frac12 \sigma^2 V^2 F_{vv}(V,t) + \mu V F_{v}(V,t) - r F(V,t) + ...
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Derivation defaultable bond price in Leland 1994 (Merton)

Consider the model in Leland (Journal of Finance, 1994). The partial differential equation that describes the price of the (perpetual coupon defaultable) bond is: $$\frac12 \sigma^2 V^2 F_{vv}(V,t) + \...
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Pricing kernel representation

I am reading this paper https://mpra.ub.uni-muenchen.de/4969/1/MPRA_paper_4969.pdf pp.6-7 on discrete-time bond pricing. The model adopted is a a common affine model, the short rate follows \begin{...
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57 views

Can you use the Svensson model to fit a smoothed curve for yields on coupon paying bonds rather than spot rates?

i've been struggling to find an answer to this question online, I know most applications of the model are used on zero (aka spot) rates. But could you use yields from a sovereign yield curve (i.e ...
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66 views

Conversion factor for futures hedging?

I had a question regarding conversion factors and treasury futures in the context of hedging for DV01. In my textbook, in order to calculate the hedge ratio they give this formula: $$ HedgeRatio= \...
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What is the Q-dynamics of affine bond prices when r is described by the given model?

Assuming an Affine term structure model, where bond prices arebe defined as: $$P(t,T)=\exp({A(t,T)-B(t,T)r_t)}$$ and describing the Q-dynamics of the short rate according to the model: $$dr_t=ar_tdt+\...
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25 views

How do I calculate the bond index in case of the presence of corporate actions? to prevent a change in the value of index due to corporate actions?

I want to make index for the bond market, I read several methodologies and I didn't find a divisor in the equations used for bond index calculation. As i know from the stock indices that a divisor is ...
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121 views

Extracting the OAS out of an MBS?

I was reading about OAS and I'm wonder how one could "extract" (or "capture") the OAS out of a product by hedging out all the other risks. One of the explanations I got from OAS ...
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36 views

How is Inverse Super Floater built?

I am pretty new to fixed income and came across to a product called Inverse Super Floater. I am wondering, what are the components of this product assuming issue price of 100 (redemption amount of 100 ...
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53 views

Day-Count-Conventions T-bills, T-notes and T-bonds

I have a question regarding the day count conventions for T-bills, T-notes and T-bonds. So far I haven't found an official page that clearly states which method is used and I don't own bloomberg etc. ...
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39 views

Nominal bond yields vs. TIPS yields?

I am struggling with understanding the difference in yields between nominal bonds and inflation-adjusted bonds. With inflation adjusted bond like TIPS, every coupon payment in addition to the face ...
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What are some advanced methods for bond risk transformations?

Consider a portfolio of bonds within a given yield curve (e.g. Gilt curve), consisting of positions in every bond in the curve. I'm looking for ways to transform the risk of the portfolio into ...
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29 views

Scale price and returns

Through Bloomberg I have downloaded some data related to the Bloomberg Euro Aggregate Bond Index, however I think I am wrong. I was convinced to have taken the historical prices of the index (in ...
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33 views

How to compute the yield to maturity on a zero-coupon 3 year bond in this case?

Suppose I have the following problem: We have data on three bonds: a one-year zero-coupon bond (bond A), a twoyear zero-coupon bond (bond B), and a three-year bond with an annual coupon equal to 5% ...
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27 views

Carry and expected return of a short bond basis position

If we assume net basis is 0, the bond trades above par, the bond’s yield > than the term repo rate, what is the expected pnl of being Short the ctd vs long futures? I would have thought the ...
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3answers
131 views

Carry and Pull to Par of a bond

I am of the understanding the true carry of a bond is yield - repo rate. And not simply coupon + repo cost because this doesn’t ...
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32 views

Euribor + margin

I have this bond assigment where I have to calculate the CF each quarter, given a constant EURIBOR3M rate of -0,539%. There is also a 1,6% margin per annum that I have to take into account. The ...
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How accurate is YTM as a reference measure of non-holding-to-maturity return?

We need to offer an estimated return of a non-hold-to-maturity strategy. Essentially, we borrow money from the market and buy a bond. Instead of holding the bond to mauturity and locking in a return ...
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70 views

Is the price of the following inflation derivative observed/traded?

Let $M_{t\to t+2}^{\\\$}$ be the pricing kernel (SDF) from period $t$ to $t+2$. Let inflation over period $t$ to $t+1$ be denoted by $\Pi_{t \to t+1}$. Is it possible to observe the following quantity ...
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Using compound interest rate in wrong way

I will explain the problem with an example. Today (14/03/2021) y agree a Zero-Coupon Mortgage with a nominal of a milion dolars an with an annual interest rate compounded annualy and with an ACT/360 ...
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59 views

How are repo rates / repo haircuts determined?

Sorry if this question is a little too basic but what determines repo rates? Not like "they are OTC transactions so they are determined directly between counterparties" but like what is the ...
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39 views

Can both good buying and good selling cause a bond to go special on repo?

A bond is known to go special when its repo rate gets particularly low relative to the GC (General Collateral) repo rate. In my mind, this can be caused by two scenarios: 1. Institutional interest to ...
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91 views

What are the practical costs of repo for a bond trading desk?

I appreciate what a repo/reverse repo transaction is, but I'm struggling to understand exactly how the cost of funding trades via repo works from a practical point of view for a bond trader. Current ...
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208 views

Yield-to-maturity (YTM) vs effective annual rate (EAR)

If the yield-to-maturity (YTM) on a bond is 5%, is the effective annual rate (EAR) on the cash flows associated with the bond also 5%? I know that YTM does account for the present value of a bond's ...
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176 views

Is this simple model used to calculate the interest rate duration and credit duration of a floating rate note? Other models?

I found this model for floating rate bonds in a book I am reading and I am wondering if it is used anywhere in practice? $$MV=\frac{\frac{(Index+QM)\cdot FV}{PER}}{\left(1+\frac{Index+DM}{PER}\right)^...
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78 views

Why do a callable bond always have higher yields?

In an american callable bond there is an expectation for the issuer to prepay its debt prior to maturity. I understand that this reduces it's value and therefore, higher yield. But another way to ...
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90 views

How to calculate a Corporate Bond Transaction Price (Bond returns?)?

I am struggling with the concepts and variables of corporate bonds returns. Bai, Bali and Wen (2019) define monthly corporate bond returns as: Where where is transaction price, , is accrued ...
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Implied repo rate from carry component

Carry is coupon income + pull-to-par - financing cost. Pull to par is derived as ytm-coupon. So carry can be rewritten as ytm - financing costs. Carry cash value is the current dirty price minus the ...
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48 views

Hypothetical yield for a government perpetuity

I understand that with interpolation or bootstrapping one can determine spot rates given other spot rates, however how would you go about establishing what a hypothetical perpetual bond issued by, say,...
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135 views

How does the term premium of the 10y20y Treasury forward rate relate to the 30y rate?

I'm reading recent research on Treasuries and to paraphrase, it says that long term 10y20y Treasury forward rates now have a positive term premium over the long run nominal funds rate (neutral rate). ...
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Carry & Roll, roll down current curve valid assumption?

The assumption for calculating the roll of a fixed income instrument is that you roll down the current spot curve. So if 10y rate is 2% and 9.5y is 1.8% the carry for the coming 6 month horizon is ...
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52 views

Valuing Bonds With Continuous Coupon Yields

How do I find the value of bonds with continuous coupon yields and interest rates that are both a function of time? The bond has a redemption of 2000 at time $t=2$ and pays continuous coupon payments ...
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Price of a zero coupon and fisher Weil duration

Suppose that the spot rate curve (continuously compounded) is 2% for t less than or equal to 9 years, and the forward rate f(9,t) is 7% (continuously compounded) for t > 9 years. Suppose you have ...
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Total return of a bond using spot rates

Suppose that the current spot rate curve (annually compounded) is s1=0.2%, s2=0.8%, s3=1.2%. Assume that one year from now, the spot rate curve will be s'1=0.8%, s'2=1.4%, s'3=1.8%. Consider a 3-year ...
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2answers
140 views

Construct a zero coupon bond

Suppose a 3% 10-year bond is trading at 89 and a 7% 10-year bond is trading at 97. Then (assuming no arbitrage) the price of a 10-year zero-coupon bond would be: The answer should be 83. How using ...
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estimate credit bond price out of trading hour

How to estimate a credit bond's price out of trading hour ? For example, how to estimated an U.S credit bond's price at 8am london time, when the US bond market is closed? We can decompose a credit ...
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Implicit Scheme for Cox-Ingersoll-Ross Model PDE

I am considering the PDE for the price of a bond $V(r,t)$ with maturity $T$ under the Cox-Ingersoll-Ross model, $$V_t+\frac12\sigma^2rV_{rr}+\nu(\theta-r)V_r-rV=0\quad r>0, t\in(0,1)$$ with ...
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30 views

Can the carry of bond future be approximated by conventional yield and implied repo?

I have a question regarding bond futures, carry and convenience yield $y$. Suppose we look at the cheapest to deliver bond for a bond future. Suppose the CTD has a conventional yield of $-0.72$ and ...
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Comparing swaps with bonds

Swaps and bonds have a lot of similarity although one is a security and the other is a derivative. For example, libor for swaps is like repo rate bonds (thinking them both as the funding leg) fixed ...
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For a bond, what is the formula for expected loss?

The expected loss equals PD * LGD * EAD, meaning probability of default times loss given default times exposure at default. I get how we can get PD and LGD, but what is the exposure at default (EAD) ...
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227 views

Bloomberg bond clean price and accrued amount differs from Quantlib

I'm getting the different bond clean price from Bloomberg and from QL but surprisingly Bloomberg price matches with excel price() function I have the following bond : GETC21117030. The parameters are ...
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4answers
130 views

US Treasury - IEF vs ZN Cumulated Return Comparison

I have been trying to explore the possibility of replacing my IEF (10 years treasury ETF) positions with ZN (10 years treasury futures) for better leverage. Reading the posts here, I understand that ...
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95 views

Calculating discountmargin using flat yield

How do you calculate the discount margin of a floating rate bond using flat yield? What is the formula?
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85 views

How does the yield of a floater change when the discount/required margin changes?

On this site: https://ebrary.net/14293/economics/actual_floater, it says that the yield of a floater is deteremined like this: That yield is determined by assuming the coupon rate on the floater is ...
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2answers
105 views

Bond price under the risk-neutral measure

Could you point out where I am making mistake in the process below? It follows from the term structure equation and the Feynman-Kac theorem that the bond price is given by $ p(t,T) = E_t^Q\left[ \exp\...

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