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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9 views

Carry & roll - question regarding the repo transaction

Could someone please explain the carry and roll trade that a lot of traders are doing with negative euro debt? I read an example that they borrow in the repo market then buy a longer dated bond to ...
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Stress testing fixed income Yield curve with Nelson Siegel

I am attempting to stress test the Zero coupon Yield curve using The Nelson Siegel model as described in the following papers : Generating Yield Curve Stress-Scenarios Representative Yield Curve ...
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Discount drop calculation for a Treasury Bill

How is the discount drop calculated for a US treasury bill for a forward settle date?
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1answer
36 views

impact of bond futures conversion factor on calendar spread trading

i have a quick question about conversion factor and his implication in calendar bonds roll trading. I go short on a calendar roll (short front+long back) which has the same cheapest to deliver. The ...
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58 views

Libor Forwards from Swaps

I am trying to understand how to interpret a few forward curves that I grabbed from Bloomberg. In Bloomberg, you use ICSV command and choose the USD to Libor swap curve. I did this and grabbed the 1mo,...
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How exactly are corporate bonds priced at issue

I am interested in Debt Capital Markets but I am struggling to understand how bonds, particularly corporate bonds, are priced initially. I know that a company will tap an investment bank as book ...
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48 views

Negative 2y swap spreads

2y swap spreads have dipped below zero for the first time. Can this stay negative and invert more? If my math is correct, the negative swap spread for the 2y leg suggest that the expected path of 3-...
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1answer
22 views

How to understand interest rate bid/ask and apply client mark-up in Tom/Next Rollover Swap Point Calculation

When I am reading materials in swap point calculation for FX Tom/Next Rollover, I am confused with the market interest rate bid/ask. Using an example: I traded on ...
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54 views

Interest rate equation from bond price?

If a zero coupon bond price at time $t$, with maturity $T$ ($t<T$), is denoted by $B(t;T) = B(T;T) e^{(-\int_{t}^{T} r(s) ds)}$ where $r(t)$ is a known interest rate. How does this transform ...
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43 views

How do I derive a blend of a 3Y future and 10Y future risk?

So I have a portfolio of Govt. bonds that I'm trying to hedge with futures. Let's take one of the bonds out of the portfolio as an example. In bloomberg, every bond and its future counterparts has a ...
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32 views

Calculating theoretical spot rates of treasury bonds beginning with treasury bills

In Introduction to Fixed Income Analytics by Frank Fabozzi, p. 41, there is an example how to calculate the theoretical spot rate of a 1.5 year treasury bond with a 3.5% annual interest and semiannual ...
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60 views

Daily accruals - when does it accrue?

Is there a convention on when interest should be accruing? That is, does interest on a bond accrue during the business day, or does it accrue overnight? Are you able to point me in the direction of a ...
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52 views

Measuring liquiduity of a portoflio of bonds

I'm currently looking into applying bond liquidity out of curiousity. The Method i'm currently using is the Barclays LCS score (live.barcap.com/publiccp/RSR/nyfipubs/barcap-email-mkting/qps/LCS_In-...
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48 views

What are the best relative value frameworks for Corporate Credit?

Fixed Income (Credit) fair value models in the literature tend to be variations on cross-sectional regressions. For a recent example in a factor-model setting, see here. My understanding is that this ...
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Which curve does the interest rate risk fall in?

For example, Australian government issues a bond denominated in USD currency? Which curve does the interest rate risk fall in? Australian Gov Curve or USD Gov Curve?
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1answer
51 views

How is CPR (re-)calculated for fixed fully amortizing agency mortgage pass-throughs given prior partial prepayments by mortgagors in the pool?

Background: in the US, mortgagors are allowed to prepay any amount and in any arbitrary time during the lifetime of the mortgage, which leads to prepayment risk if this deviation differs from the ...
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85 views

Why did high yield corporate bond ETFs tank during the great recession

My apologies if this is not mathematical enough for this outlet. My understanding of the pricing of a bond ETF is that lowering interest rates drive the price up and increased risk of default drives ...
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38 views

Framework for hedging fx and utilizing correlation between asset returns

Can anyone point me in a direction (research paper, books, ..) which developes a framework/strategy for hedging currency exposure for an international bond portfolio? This paper finds optimal ...
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30 views

Implied volatility of Treasury options

For practitioners, does the concept of implied volatility also apply to (European) Treasury Options (whose underlying is Treasury Futures contracts)? For the standard individual stock vanilla ...
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1answer
46 views

Zero-coupon bond price under Rendleman-Bartter Model

let's say that I have simulated the interest rate using the Rendleman-Barttermodel, (which is not the best for rates I know) and then I want to simulate paths for the bond paying 1 at maturity: $$...
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74 views

What is Yield To Convention?

I know what gross redemption yield of a bond is. I am unaware of "Yield To Convention". It is a Bloomberg ticker code (multiple in fact) YLD_CNV_MID, YLD_CNV_ASK & YLD_CNV_BID The term "Last ...
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61 views

How do Repo traders use OIS and Fed fund rates

I would like to know how do Repo traders use FED Fund rates and OIS to cover themselves. For example assuming the repo trader bought paper(borrwed paper/lent cash) in the 1 year. How do they cover ...
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32 views

Collecting historical coupon data on sovereign generic bonds in Bloomberg

In the Bloomberg terminal, a generic bond (e.g. GGR >> Australia >> 5Y bond) has a coupon rate stated in the Security Description (DES). I have daily historical yield data for the generic bonds, and ...
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98 views

Roll Returns vs Total Returns

Very basic question I'm confused about : Is there a formula that relates total return of a bond as a function of yields and its roll down returns? I mean ignoring reinvestment risk, would the ...
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69 views

Treasury Futures Basis Trade - Funding enhancement

In a basis trade, if you short the Treasury futures and buy the underlying bond and hold it to maturity, is funding the only source of risk assuming there no CTD switches. You have locked in the ...
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46 views

Factor Loading with multiple exposures?

How do I decompose portfolio exposures when assets may have exposure to a few of my risk factors? For instance I have some sector and state specific risk factors. If I have a bond with exposure to ...
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43 views

Poisson distribution and counting process

Let $\begin{Bmatrix} N_t \end{Bmatrix}_{(t\in[0,T])}:=\mathbb{I}_{(\tau \leq T)}:=k, \forall t \in [\tau_{k}\leq \tau_{k+1})\sim \mathrm{Po}(\lambda_{t}:=\int_{0}^{t}\lambda_{s}ds<+\infty)$ a ...
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46 views

Add a country OAS to a government bond model? (modelling returns of the bond price)

when modelling the % returns on a government bond, I use a model like this: $$\Delta P_t / P_{t-1} = \sum_i KRD_i (-\Delta y_i)$$ Does it make sense at all to add the following "country oas" ...
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46 views

Wave Method and Implied Duration

I am pricing an MBS under three different rate scenarios: a base case, +5bps and -5bps I compute partial durations on the base case using the wave method (P. Hagan: Calculating Delta Risks and Hedges ...
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42 views

Pricing bond backed by collateral

I'm new to quantitative finance, and trying to derive an interest rate for a collateralized bond. Imagine there are two parties, Alice and Bob. Alice wants to lend $X$ units of an asset to Bob. The ...
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97 views

Yield Curve Flattening Trade

Relatively simple question, but came upon it in class and have not been able to come up with an answer: The two-year bond yield is equal to 4% while the 10-year one is equal to 10%. You want to put ...
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1answer
72 views

what are the underlying transactions for SOFR?

Recently I am reading about SOFR (Secured Overnight Financing Rate), which is projected to replace LIBOR to be the reference for risk-free rate in the market. But I still don't understand or imagine ...
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121 views

Fixed Income Portfolio Optimization

I'm trying to solve for a maximum sharpe ratio portfolio in the fixed income space. To do so, i use CVXPY in python. I use this Paper as reference. This is my "setup": ...
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67 views

Valuation of Callable Bonds

Is there any way to price American Callable Bonds (those which can be called on any date before expiration) other than basic CRR interest rate trees, since they won't be accurate enough to give ...
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98 views

When to use which zero curves

I have a very basic question. Why are there many different zero curves for a given currency/market? For example, there are zero curves constructed using gov bonds, swaps, STIR futures, OIS, Inflation, ...
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Retrieve SYC from Par yields

Currently studying about fixed income and the construction of the Spot yield curve, but I do not know whether my intuition is right. Suppose we have a firm that has traded Bond for different ...
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170 views

Treasury futures cost of carry and P&L

I'm looking to understand the P&L implications of holding 2YR treasury futures. Assuming no movement in interest rates through to maturity (i.e., no capital gains or losses due to interest rate ...
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2answers
86 views

CDS, default probability and bond price

When we calculate the implied default probabilities from CDS, can we use that information to price bonds? I am getting familiar with Fixed Income. I saw textbooks using implied default probabilities ...
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36 views

Determine same issuer from a list of ISINs?

I have a list of ISINs for all the securities that make up a fixed-income fund. Is it possible to tell from this which securities are from the same issuer? I have securities of which I know they are ...
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Optimal investment mix of equity and debt in a single company, HY vs IG

What is the optimal mix of equity and debt that an investor should invest in a single company? If an investor invests in both the debt and equity of a company, they are in effect de-levering the ...
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43 views

Extracting Risk Neutral Default Probabilities using Option Adjusted Bond Prices

I am currently in a project trying to quantify default risk premia for US Corporate Bonds. The data I have consists of bond prices, and other information (i.e. YTM, OAS, Effective Duration, Maturity ...
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Calculating historical volatility and returns from bond yield

I am interested to calculate the historical volatility and returns from a time series of US 3m T-bill yield (see screenshot below), for portfolio optimization. I am not too sure how to bridge the idea ...
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27 views

Floating coupon rate based on sales?

Just a quick question, can a floating coupon rate be tied to SPV daily revenue? My client want to issue an ABS bond, and its coupon would be (0 + 2% of the daily sales) Would it be admissible? or ...
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43 views

How to apply multiplicative price seasonality to bond prices in quantlib?

Can someone please give a brief or any link which explains how to apply multiplicative price seasonality to inflation linked bonds in Quantlib using python modules. Have gone through most of the ...
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113 views

Cross currency basis swap for bonds

Running a cross currency swap on a GBP issued 2.75% 7yr bond (i.e a bullet), with funding in USD so need to determine the equivalent in USD. The GBP bond trades at circa 180bps over the Gilt. ...
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Perpetual bond valuation between coupon dates

According to this Derive Perpetual Bond Price , I learned how to derive the formula of perpetual bond. However, I still have some questions. Firstly, do I need to change the formula when valuing the ...
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82 views

Treasury Futures Wild Card Option equation

I am confused about the equation on page 13 (upper right) from the CME: https://www.cmegroup.com/education/files/treasury-futures-basis-spreads.pdf The equation calculates the move in the CTD that ...
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48 views

Negative vega on IR swaptions mid curve

Why do IR bermudan options have negative vega on midcurve? Does it have something to do with mean reversion and a way of lower the price vs market prices?
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73 views

Why are KRDs calculated by shifting the par curve?

When we compute Key Rate Duration, why is the par curve the right curve to shift instead of the spot curve?
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113 views

Calculate forward discount factors and forward reference rate when discount factors are known

I am trying to learn how to value interest rate swap through portfolio of FRA's(forward rate agreement).But I have got stuck in calculation of floating leg. Here is the scenario as given below for ...