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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 ...

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24 views

Logic between Tips and Inflation Surprise

I've heard a relation which says that if the actual inflation is lower than the inflation expectations, then the price of Tips and gold goes up, and vice versa. Could anyone explain the logic behind ...
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45 views

What is the value/price of a bond paying floating rate

I am going through J.C.Hull for swaps. Where he says we can value a swap using bonds. Let $B_{fl}$: value of floating rate bond, $L$ notional principal. Why is $B_{fl} = L$ just after a payment ? What ...
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33 views

Convertible bonds pricer - implementation

Where I can find numerical implementation (in any programming language) of convertible bonds pricer based on the following article: E. Ayache, P. A. Forsyth, K. R. Vetzal, "The Valuation of ...
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22 views

How to understand ZeroSpreadedTermStructure influenced by compounding & compounding frequency?

Long story short: I used two ways to price a floating rate bond, which I expected to get the same result, but not actually. ...
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2answers
51 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
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1answer
65 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
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1answer
109 views

Why do Treasury Futures settle at maturity with higher yield-to-maturity than the corresponding spot rate? [duplicate]

Absolute beginner on bonds, trying to understand why spot rates seen for US-T don't seem to line up with CME futures for ZT/ZB/etc at their maturity. For instance, ZB-U8 seemed to settle at 140-27 on ...
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21 views

Lottery calls on municipal bonds

I'm trying to independently price several municipal bonds with lottery calls. Based on market prices/yields I can tell that the price, ytw, etc. is not based upon the first viable call. What is the ...
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1answer
41 views

Bond and Stock Relationship

Is there any formulair relationship between the price of a corporate bond and the stock on the same company?
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0answers
27 views

Using above par zero coupon bond to build a zero coupon curve

Should I discard bonds above par (zero coupon bond with market price over par value) when I build a zero coupon curve? Most of the academic textbooks use bonds below par as inputs to build Zero ...
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1answer
54 views

How should we calculate the duration of a convertible bond?

For callable bonds we can use the effective duration to approximate the modified duration, since the future interest rates will affect the expected cash flows. For convertible bonds the underlying of ...
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3answers
119 views

YTM of “very-seasoned” bond issues

There is a liquidity premium between on-the-run treasury issues and off-the-run issues with similar characteristics. This is why when building a yield curve, typically on-the-run issues are used to ...
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48 views

Strategy in steepening curve environment, stable spreads - HotS interview problem

The following problem was found in "Heard on the Street": You construct a yield curve for (coupon-bearing) treasuries. A particular five-year corporate zero-coupon bond has a default risk ...
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1answer
51 views

Zero Coupon Curve and Floating Rates Notes pricing

Simple question: Can I use a Zero Coupon Curve (using Treasury or Swap Curve) to price floating rates notes (FRN)? I am building a classic Zero Coupon Curve, however I wonder if I can use it to ...
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1answer
26 views

how to change the value set by the addFixing method in QuantLib

Suppose we have had constructed an index for forecasting future interests of a floating bond, and as suggested by the official document, I used addFixing method to set a past fixing for the current ...
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20 views

Treasury auction cycle - short base

During an auction cycle, the most recent securities typically trade special (their rates are below general collateral rates). The securities are harder to borrow in the repo market and participants ...
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0answers
29 views

Soft Question: Why forward-rate curve models?

Why did people move away from short-rate models to forward-rate curve models (besides the HJM drift restriction)? Are there any benefits of short-rate models which forward-rate curve models do not ...
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111 views

Isn't CS01 the same as spread duration (converted to 01 terms)?

CS01 is sensitivity of price to change in credit spread. Spread duration is sensitivity of price to change in OAS. OAS (assuming non-callable bond) is t he additive spread one needs to add to a risk ...
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1answer
132 views

Why Arent There Long Rate Models?

You have short rate models, https://en.wikipedia.org/wiki/Short-rate_model, but there doesnt seem to be any long rate models. I find this weird as in options modelling you model the whole smile, not ...
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1answer
98 views

Hedging Ratios for Fixed Income Instruments

If you buy a corporate bond and you want to hedge the interest rate risk, how would you know how many interest rate futures/swaps to hedge the bond with? The same with an MBS security, if you want to ...
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17 views

Duration Calculation with Delayed Amortization

I am trying to calculate Duration for a bond with a 10 year maturity, but experiences 10% Amortization over the last 5 years. It also has a 5% coupon. I am interested in the answer, but more ...
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21 views

Pricing European Call on Coupon Bond in Lattice

What's the best approach to pricing a par call option on a coupon paying bond? Is it to discount the greater of the price and strike through the lattice? And for this, is the price used the dirty or ...
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2answers
84 views

How to calculate implied repo of a hypothetical bond that has not been issued?

I want to calculate the implied repo to a delivery date for a series of bonds that have not been issued yet. Do I make assumptions about the bond yields on some trade settlement date and the futures ...
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1answer
41 views

How to compare bonds in terms of volume traded in Bloomberg Excel Add-in?

I want to compare how much bonds of a handful of companies have been traded over the last years and pick the most traded bond for each company via the Excel add-in. One example of what I have tried ...
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1answer
73 views

For a fixed-fixed cross currency swap, can I use a curve with two floating legs to discount the cash flows?

I'm doing a USD to INR fixed-to-fixed cross currency swap. The default curve has a fixed and a floating rate. However, the curve that I'm looking to use has floating rates on both legs. Would this ...
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0answers
45 views

Pricing a preferred share

I am looking for references for models which price preferred shares. What are the classic pricing papers?
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1answer
67 views

What's the most accurate benchmark index for US corporate and treasury bonds

I'm looking for an index for US corporate bonds and US treasury bonds to benchmark my strategy. I could easily use some ETFs as the benchmark for the recent years but I need data for the time range <...
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36 views

Why is inflation breakeven defined as real - nominal and not real/nominal?

Why is inflation breakeven defined as real - nominal and not real/nominal? Real/nominal is the actual projected inflation rate, while real-nominal is just the "Fisher approximation" for inflation. ...
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1answer
46 views

Credit Spreads and Relative Value : floating vs fixed bond

I would like to study if, in these weeks during the italian credit crisis, floating govy bonds were more resilient than fixed govy bonds. For each floating issue (CCTS) I chose the fixed issue with ...
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0answers
52 views

A basic question about short-rate models

Sorry, if it's a very rudimentary question. I mainly practice tax but have to deal with financial transactions from time to time where I have to benchmark option prices. I have usually used Hull's ...
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1answer
51 views

Repo advantage relative value (Treasury) [duplicate]

If a Treasury issue is trading special (100bp repo advantage vs GC in overnight repo), and it's worth -10bp in carry (assuming duration is 10) and the error to the Treasury spline is -5bp, would this ...
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2answers
37 views

Australian Treasury Bonds - Price Calculation with Accrual

In this document ASX Interest Rate Derivatives (on page 7) the Australian Commonwealth Treasury Bond (paying semi-anually) is valued as $$ P = v^{f/d} \cdot \left(\frac{c}{2} + \frac{c}{2}\cdot\sum_{...
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2answers
88 views

Relationship between BBB credit spreads and rising interest rates

A stylized fact in markets seems to be that there is a negative correlation between interest rates and corporate spreads - as interest rates rise, spreads tend to tighten and vice versa. I'm ...
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15 views

How to compute historical bond drawdowns from yields

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. However, the picture I get looks a bit ...
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0answers
57 views

Bloomberg OAS model

What interest rate stochastic model does bloomberg use to construct the interest rate trees for the calculation of bond OAS. If the model used is lognormal, then how is the volatility calibrated for ...
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3answers
130 views

What are the impacts of the discontinuation of benchmark Interest Rates?

I was wondering what the impacts of Interest Rates benchmarks (LIBOR/EURIBOR) discontinuation might be on the Quants side ? Do you know if there are articles/discussions providing an analysis grid of ...
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0answers
40 views

Extension of HJM to multiple factors

The HJM model calibrates the entire forward curve using the existing yield curve data and this results in the following expression for its instantaneous forward rate- $$df(t,T)=\sigma(t,T)\int_0^T\...
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1answer
122 views

How to compute bond drawdowns?

I came across a very interesting article which shows a picture with the drawdowns bondholders would have faced by investing in Fixed Income since 1919. The data is based on the Moody's seasoned AAA ...
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1answer
90 views

Calculating PnL on Swap Spread Trade

Say I am a long a 10Y US govt. bond and short (i.e., pay fixed) a 10Y US IRS. The swap spread moves, for example, from -0.25 to -0.3. What do I need to calculate P&L (approximately)? Are such ...
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1answer
43 views

Fallback Interest rate volatility for OAS model

The Bond OAS computation model used in our bank (The model was created in the 90s and the people who worked on it then are no longer part of the company) uses a fallback interest rate volatility of 27....
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48 views

Effect of volatility on Option Adjusted Spread

In the calculation of the Option Adjusted Spread, what effect will increasing the volatility have on the OAS number. The volatility only determines the ratio of the interest rates of different nodes ...
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2answers
78 views

why the implied repo rate is higher when choosing the last delivery date to deliver rather than first delivery date

there must be something very basic that I did not get.... I am reading a book. And it says the implied repo rate is defined as IRR = ( invoice price / cash bond price - 1) * 360/ n, where is the ...
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48 views

repo rate v.s. reverse repo rate

from a book, I read that repo rate is usually higher than reverse repo rate. i.e., the rate to financing a long security position is higher than the rate to lend cash using securities as collateral. ...
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0answers
34 views

OAS of a perpetual bond

How is the OAS (Option Adjusted Spread) of a perpetual bond with embedded option calculated? My specific point of doubt is the maturity that has to be used to construct the binomial tree for ...
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2answers
129 views

Difference Between FRA and IR Future pricing [closed]

[original question was to know the difference between IR fut and FRA] Turns out that FRA and IR Futures are just the OTC and Futures counterpart of the same underlying, that is, the interest rate. ...
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40 views

Adjusting for term structure of repo rates to get apples to apples picture

I'm looking at term repo rates and need to get a measure that removes the curve component so I can make an apples to apples comparison. I think the concept is similar to taking two Treasury bonds and ...
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2answers
284 views

How to adjust butterfly 2s5s10s swaps trade for directionality?

I am looking into a 2s5s10s swaps idea using a 50-50 weighting scheme, where it's 2 times the 5 year minus the 2 year and 10 year. However, there is a correlation between the butterfly spread and the ...
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1answer
100 views

why the financing cost of a bond is repo?

In a repo transaction, the cash borrower pays an interest in repo rate for borrowing the cash. On the other hand, the cash lender gets a bond as collateral. In this transaction, it looks like the ...
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1answer
64 views

what is the underling of treasury bond future contracts? and what determine/drives bond future's theoretical/market prices? [duplicate]

Am I right that the underlying is a basket of deliverable bonds? If this is the case, how is the bond future prices actually determined? If there was only one bond in the deliverable set, the bond ...
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82 views

Chat bot for traders [closed]

In the framework of my internship at a bank, I want to write a chat bot program in Python that allows our bond traders via their Bloomberg terminal chat box application to type in structured command ...