Questions tagged [fixed-income]
Securities which obligate the borrower/issuer to make payments on a fixed schedule. Fixed income securities include sovereign, corporate and municipal bonds, corporate loans, and securitized lending (e.g., ABS). "Fixed" refers only to the schedule of obligatory payments, not the amount, and may include inflation linked bonds, variable-interest rate notes, and the like.
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US swap spreads
Traditionally US swap spreads were traded as LIBOR or OIS swaps versus USTs.
In the former case the spread at the short end of the curve was very much a function of LIBOR repo spreads. Further, LIBOR ...
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Compare Spread On A Fixed Bond Vs A Loan/FRN?
I was discussing with a colleague, but in short, how do you compare a fixed bond vs a loan/frn when it comes to spread? Theoretically, you should get paid more for holding fixed bonds, as you have ...
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mathematical proof of the hedge ratio formula for bond futures
We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is:
ϕ_F= -(DV01_B / DV01_CTD )*CF_CTD
Where:
DV01_B is the dollar duration of the bond i ...
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Is there a relationship formula between Bond YTM, ZSpread ( to OIS ) and OIS rate?
It seems to me that :
$$\begin{aligned}
P_{Dirty} &= \sum_i(\text{cashflow}_i * \exp( - \text{yield} * t_i ) ) \\
&= \sum_i( \text{cashflow}_i * \exp( - ( \text{OIS}...
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Any other ways to hedge a bond portfolio against interest rate risk?
I'm currently taking a (gentle) intro to derivatives class. One of the exercises asked me to discuss duration as a risk measure and to provide alternative methods of hedging a bond portfolio against ...
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Downloading historic yield curve data from bloomberg [closed]
I am a PhD student and I have a couple of problems:
I want to get the US yield curve but I don't know which curve I need.
Once I have identified the curve, I want to download historic data for it.
I ...
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Difference in interpretation between credit ratings from different agencies
i got this question at work from a client and my answer was not satisfying so here I am.
if i have a portfolio of corporate bonds and govies, i collect all credit ratings from BBG terminal and by ...
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Senior Preferred vs Senior Unsecured Bonds
What's the difference between Senior Preferred bonds and Senior Unsecured bonds. I understand the difference Senior Preferred vs Senior Non-Preferred bonds. But Senior Preferred and Senior Secured are ...
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Floor vs Receiver Swaption with Equal Strike
Let's say we have the following two instruments.
A 5x10 floor (5-year floor, five years forward) with a 4% strike on 1-year SOFR and
A 5 into 5 European receiver swaption (right to enter into a 5-...
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DV01 of 10-Year vs 1-Year Zero-Coupon Bond at 0% Flat Interest Rate Curve
As the title suggests, what are the DV01s of a 1 million principal zero-coupon bond with 10-year and 1-year TTM with an assumed 0% flat interest rate curve. I understand that the duration for both ...
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How does shorting ZCBs to immunize portfolio work?
Let's say that we have a portfolio of bonds with face value of $1,000,000. The bonds are 3 year maturity with 4% coupon. The yield curve is flat at 8%. We want to create a hedging portfolio which will ...
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Can someone please suggest good books for Rates Structuring? [duplicate]
I am interviewing for with a bank for their Rates Structurer. Can someone please suggest literature I can go through.
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How do you interpret the portfolio DV01?
I am having trouble understanding the active dv01 of a portfolio? If the active dv01 of a portfolio
is -10,000, what does that mean, all else equal? And what are different ways of increasing dv01 of a ...
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Market Makers how can they sell an asset they don't have
I'm having trouble grasping the operations of market makers. For example, consider Bank XYZ, which has set a bid-ask spread for T-Bond A at $90.1 (bid) - 90.2 (ask)$. Suppose a client of the bank ...
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Vasicek model calibration to bond prices or rates (no swaptions)
I need to calibrate Vasicek's model $dr_{t} = a(\theta - r_{t})dt + \sigma dW_{t}$ in a market with no swaptions. I was thinking in estimating $\sigma$ with historic data, but I'm in the doubt with ...
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What is "position" when referring to the holders of a bond?
A bond has a "holders" list, available on Bloomberg. I can see "held amount" of each party in USD, but what is the meaning of "position"? Is it a USD value (if you ...
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Modeling switch and wild card option for a Treasury futures contract
I understand how to think about the switch option and wild card option in Treasury futures. I know how to model them and get a fair value separately. However, I do not think you can simply just add ...
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LQD and IG cash spreads
Can someone please tell me the relationship between LQD and IG cash spreads. what's the movement (widen/tighten) of the spreads can tell me about the market, supply and demand
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Why are we so focused on Zero Coupon Bonds?
In fixed income markets there seem to be two prevailing term structure modelling approaches:
Market Models
HJM Framework
In Market Models, such as the LIBOR Market Model (LMM) and SABR it is common ...
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CMS diffusive dynamic
As I am landing on a project related to CMS option, I am wondering if one can write dynamic for CMS depending on the pricing model.
For example, is it possible to have a diffusive dynamic for the CMS ...
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Does "locking-in" higher yields in long duration bonds make sense for the retail crowd?
The retail crowd often think that it is a good idea to buy long term bonds and hold until maturity to "lock-in" the current higher yields. I think that they are exposing themself to ...
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Can I use Nielson Siegel to 'interpolate' par yield
The NS model initially set a parametric form for forwards and we can get equivalent zero rates. If I have a few par yields, can I simply fit the par yields to the NS form or the NS form of the zero ...
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clarifying Treasury basis carry [duplicate]
I'm going through the classic The Treasury Bond Basis by Galen Burghardt. In the book he states, "...if the yield curve has a positive slope, carry for someone who is long bonds and short futures ...
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Bond future's roll (and other rolls)
I am missing some intuition on the above subject. Say I am long CTD basis (I.e. short futures):
I may opt to hold onto my position till last delivery for many reasons, say switch, wildcard etc. Why ...
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Pricing a callable bond in a minimal way
I am looking for a minimal way to price callable bond from a defaultable issuer. The idea is to assume that we are in a deterministic world (i.e no volatility).
I tried a methodology but I am not sure ...
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TBA - what is and isn't a TBA? (help please)
this is probably a naming issue - but i am totally confused as the documentation is never clear. I understand well what a generic TBA is, what is a "STIP"? is it also a form of TBA? One doc ...
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True or false: roll-down return is negative when a bond is trading at a premium
These three sources all say that the bond roll-down effect is negative if the bond is trading at a premium:
https://www.investopedia.com/terms/r/rolldownreturn.asp
https://corporatefinanceinstitute....
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How to express the price of an FRN using its duration and interest rate difference?
Where:
$P_F$: Current value of the floating rate bond
$D$ : Duration of the floating rate bond
$R_F$: Interest rate of the floating rate bond
$R_I$: Interest rate of the fixed-rate bond
$P_I$: Value ...
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Digital Coupon Note: price impact of 1bp change in high coupon
Think about issuing digital coupon dual ccy notes below.
Notional ccy: USD
Tenor: 10yr
Coupon: if eurusd > certain level, 6%
otherwise 0%, SA
Redemption: if eurusd > certain level2, usd 100%. ...
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Some US AAA Corp are borrowing below UST for 10yr paper. What could be the reasons for this?
Any particular situations which can lead to this?
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Calculating DV01 for Treasury Futures with CTD switch risk
With rates rising, certain contracts, such as the USZ3, are prone to frequent CTD switches with sometimes large differences in the DV01 of an underlying CTD. Does anyone know of any resources for ...
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Repo/Fwd/Spot/Bond Futures
I have a slight confusion with regards to what price the repo rate impacts.
Assume the repo for a particular bond richens. My current thought process is, spot should also richen (as now that bond ...
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Is there another method besides DCF to evaluate a fixed-rate bond?
I am a beginner who recently found a job in the FICC sector. My superior gave me this question to think about: 'We have a bond with a 5% coupon rate and a maturity of 10 years, and the discount rate ...
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Term structure building for credit risky bonds
I am trying to understand how, in practice, bonds (from simple corporate bonds to structured products like CDOs, ABS, MBS, etc.) are valued and marked to market.
-For corporate bonds,
...
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swap carry/rolldown mid-period
Pretty much all discussions and examples I have seen discussing carry and roll down for fix-flt interest rate swaps are ones where the forward date coincides with the coupon dates on both legs.
It ...
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PV different from Dirty Price in QuantLib
As far as I understand, dirty price is the sum of clean price and accrued amount and should be equal to the Present Value (PV) of a bond at a certain yield rate. However, I can't replicate this ...
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Dynamic Nelson-Siegel model with time-varying scale factor lambda: how to ensure the non-negativity of the state variable?
I'm trying to estimate a Dynamic Nelson-Siegel-Svensson (DNSS) model with time-varying scale factors lambda_{1} and lambda_{2}. I am therefore estimating the lambdas as state variables (same as the ...
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How to hedge 3 Month SOFR futures with 1 Month SOFR futures considering FOMC meeting
Has anyone considered trading SR3 vs SR1 SOFR futures? They both have the same underlying basis of daily SOFR, and how would one calculate a hedge ratio for the SR1 to trade along SR3?
Looking at the ...
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How do i use this formula to find the YTM of a step up bond?
I'm trying to find the YTM for a step up bond that trades at par value, how do I use this formula? Since the par value and sale price is the same, and coupon payment is different each payment.
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Financial software: academia vs. real world [closed]
I am looking for resources (if they exist) that explain the differences between quant finance software in academia and the real world, or explain how quant software is implemented in practice.
For ...
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How to compute Bloomberg T-Bill yield in BXT? [duplicate]
could any kind soul explain how are the Discount and Yield computed? Also, do they refer to “Discount Yield (daycount Act/360)” and “Yield (daycount Act/365)” respectively? Thank you!
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Should I use the yield curve or swap curve to find the value of my swap? [closed]
The PiVe Capital Swap Spread Trades' case study (in Fixed Income Securities from Pietro Veronesi) suggested that in pricing a swap, using a swap curve appears to be the most reasonable methodology.
...
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Bond Carry calculation
I had a couple of questions about carry:
$-Carry for a bond: Coupon Income - Financing Costs, if I want to convert this to bps running, would I just divide by the fwd Dv01?
My understanding is, the ...
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How can a bond price that follows an Ito process possably have value 1 at maturity? [closed]
Consider the HJM model for instance. According to Wikipedia, the price $P(t,T)$ of a ZCB at time $t$ with maturity time $T$ is of the form
$$
{\displaystyle {\frac {dP(t,T)}{P(t,T)}}=\mu\left(t,T\...
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Bond RV YTM vs maturity or YTM vs duration
I was reading some material online - seems to be a mixed bag of people who analyse yields vs maturity and yields vs duration.
To me, looking at yield vs maturity is slightly misleading - as, for a ...
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Coupon/Financing adjustments to bond prices
I have seen similar questions asked although didn't really understand the answers. If i have bonds of similar duration why is it problematic for me to adjust for coupon differentials and for financing ...
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Relative Value and Z-spreads
I wanted to understand how I can use Z-spreads in the context of gov bond RV.
I understand how to compute Z-spreads although I am having some trouble interpreting the meaning. I am solving for the ...
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Why is the NPV of this FX Forward 0?
I've checked similar questions and answers but even after setting the evaluation date in ql.settings I still get zero. Like another poster, I also have the QL cookbook and have read everything I could ...
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CS01 implied Var calculation
is there any straightforward way to roughly calculate the daily var from the CS01. Mostly from the corporate bond position. thanks,
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UST bootstrapping (coupon bearing or strips)
how common is it to use the US STRIP market directly to bootstrap a par yield curve? I am having quite a few problems using cubic (peicewise) splines on coupon bearing yield curve, but I see a fair ...
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