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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39 views

Portfolio Duration . Dirty or Clean Price?

When I calculate the Macaulay Duration of my portofolio (vanilla bonds) Should i have to use clean or dirty price to price my portfolio? What is the logic to use one or the other? Thanks a lot!
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Bond forward price in terms of dirty price dynamics

Suppose we have a model for the dirty price in terms of repo rate $q_t$, coupon process $\delta_t$ and volatility $\sigma_t$ as: $\mathrm{d}B_t=q_t B_t \mathrm{d}t+ \sigma_t B_t \mathrm{d}W_t-\mathrm{...
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96 views

Fixed Income Index, ETF Replication

Can anyone please explain how fixed income index are actually replicated (in an ETF) by asset managers ? I looked online, everyone says they do sampling (stratified sampling) which makes sense but I ...
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148 views

Any good papers on Fixed Income Option pricing?

Whilst I have managed to find plenty of material on pricing of Interest Rate Options (i.e. Caps, Floors, Swaptions, spread-options, etc.), I haven't really managed to find any solid papers on the ...
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Non-recombining lattice in non-markovian models

Brigo&Mercurio Interest Rate Models - Theory and Practice, 2nd edition, when treating not markovian HJM models, says the following "the approximating lattice will not be recombining and the ...
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53 views

R Yield Curve: Nelson Siegel Fitting

I'm trying to fit a yield curve using Nelson Siegel through the R Yield Curve package. However, the Nelson.Siegel() function only takes two inputs of yield and ...
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34 views

Fixed rate loan delta [closed]

Assume I get a fixed loan of 1000 Dollars at Libor + 5% with maturity of 5 years and monthly payments. Would it be possible to obtain a very rough approximation of the interest rate delta, without ...
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106 views

Duration and Convexity

I am searching to estimate the evolution of my portfolio duration following a yield increase/decrease. Can i use the convexity? I mean IR delta x (- convexity) = Duration delta Is it correct? Thanks a ...
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43 views

Valuation of Floating Rate bond

Let say, I have some floating rate bond where the coupon depends on 6-month Libor with semi-annual payments. In a typical text-...
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How USD indexed bonds work and what is their relation to USD futures?

I am reading about the Brazilian real devaluation crisis in 2013 around the QE3 taper announcement. As far as I understand, capital flows went back from emerging economies like Brazil to developed ...
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51 views

What does the conversion factor for Treasury bond futures do in relation to the 6% coupon specification for the contract?

I understand that the specification for say, a 10-year Treasury note futures contract is for a face value of $100,000 with a 6% coupon. However, the eligible securities that may be delivered span ...
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83 views

Forward bond yield with QuantLib

I'm looking into way to calculate forward bond yield using QuantLib. In Python QuantLib book I see an example for bond futures, where ...
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53 views

How can the face value of a bond not be a round number?

I'm reading Bruce tuckman's "fixed income securities" and I'm at the section that is explaining arbitrage. In the chart below, the cash flows are based off the biannual interest rates * the ...
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54 views

Understanding Loans with a Dynamic Principal

A classic bond/loan has a clear-cut structure, a static principal $P$ and a coupon/yield $y$ (calculated off the static principal). Now surprisingly mortgage / car / etc loans seem to have a ...
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Swap curve is unsmooth at front end with naive interpolation

I am looking at swap curve building at front end and find it difficult to get a smooth forward curve with a fast generic algorithm. For example, EUR 6m curve has 6m deposit, and then a series of FRAs (...
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1answer
263 views

Impact on DV01 of cbot bond futures by changing coupon from 6% to 4%

CBOT has been asking customers lately what their thoughts would be on coupon change from 6% to 4% on all bond futures. I believe the last time this was done was in 2000 where the coupon was changed ...
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3answers
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Bond prices and probability of default

We learn in Finance 101 that the price of a bond is the present value of future cash flows. There is no mention of default risk. Still, bond prices move each day, without a change in the payment ...
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Mismatch of periods with numeraire compared to the forward rates

In Joshi's The Concepts and Practice of Mathematical Finance Page 323--324 I believe that there may be a mismatch of periods with forward rates: Consider time partition $t_{0} < ... < t_{n}$ ...
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356 views

understanding carry for Fixed Income Securities in Pedersen

I'm following the famous paper Carry of Pedersen et al. I have a particular question about the section Global Fixed Income Carry. My main questions are around equation 15. They define Carry as $$C_t:=\...
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79 views

Misleading Yield (Callable Bonds with call price 100)

When looking at Callable Bonds, I've noticed that we often have a call price of 100 with a call date a few month before expiry. For example: US09681MAS70: coupon <...
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126 views

If I have the present value of an amortizing bond's cashflows, how do I figure out price?

Say that I correctly compute the sum of cash flows of a given bond. How does this relate to the quoted price that most people understand? IE, based on the sum of cashflows I derive a PV of 5,000,000 ...
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3answers
169 views

Comparing asset swap spreads

I am a bit confused when it comes to asset swap spreads of fixed rate bonds vs the same issuers floating rate bonds of the same maturity and issued at the same time. Should these not be comparable (if ...
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Books on loans (car, house, etc…), pricing and securitization?

I'm looking for a good book on credit analysis, lending, car loans, house loans, etc... I would like to understand the theory and practice behind it. Most books I google for are for the consumer like ...
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55 views

T- bond cash flows [closed]

a) without a frequency and T note start date how do I find the coupon dates and cash flows? b) is that calculated semi- annually? c) how do I find the number of days for the current period? Thanks
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108 views

Meaning/importance of “yields” (bonds) [closed]

After reading many articles on bond yields (yield-to-maturity) I'm still not getting what they are used for by investors. I understand the math behind its evaluation, but, say, what exactly I can tell ...
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what is the difference between Interest-only/Principal-only securities and CMO strips?

In the definition available here It seems that both Interest-only/principal-only securities. Collateralized Mortgage Obligation Strips. are types of Stripped Mortgage-Backed Securities (SMBS). ...
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101 views

Day count methods and actual coupon payments

Assume I have a bond that pays 5% coupon anually on the last day of the year. The day count method used to calculate accrued interest over time is "days actual / 360". The day before the ...
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59 views

Can repos be exposed to FX Delta risk?

I am a beginner to Repos. In the place I work there are multiple risks (FX delta, IR delta, etc.) listed under Repos. However, one of my colleagues told me to ignore "FX delta" risk for ...
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68 views

Expectation hypothesis, expectation under which measure?

As I understand the expectation hypothesis says that the implied forward rate, can be used to predict future spot rates? If $r_{0,2}$ is the rate for a zero coupon bond maturing in two years, and the ...
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Why doesn't using the forward as the underlying suffer from pull-to-par and constant volatility in Black's model?

One of the reasons for using Black's model over Black-Scholes to price options on a bond is that the bond price will pull-to-par and hence the constant vol assumption isn't true. Why isn't this also ...
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64 views

reading a table of US treasury yields

I attached screenshot of US treasury yields from bloomberg today and try to understand it. A few questions are below, taking the example of 2-year bond: Is maturity exactly 2-year later today? If not,...
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How to calculate scheduled mortgage payment of a mortgage pass-through security?

I am trying to estimate the cash flows of Mortgage Backed Security. The example is present in the Fixed Income textbook written by Fabozzi. The problem and the solution is as follows:- Suppose there ...
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93 views

Can the duration of a floating rate bond with yield spread be negative?

Summary In my calculations below I find that the effective duration(not spread duration, but interest duration) of a floating rate bond with yield spread can become negative. Do you see if they are ...
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Hedge Active Duration by Issue Currency or Country of Risk

For example, lets say I own a bond issued by a company in Mexico that's denominated in USD and I want to hedge my duration exposure. I obviously need to hedge duration to the US yield curve. Do I ...
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1answer
143 views

Duration of a floating rate bond with spread

I need to calculate the duration of a floating rate bond with spread. With zero spread the price of the bond is given by: $$p_\tau=(1+c_1)e^{-r(\tau_1) \cdot \tau_1}$$ so the duration is: $$-\frac{\...
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I am looking to bootstrap a USD and GBP yield curve: what are some of the futures and swaps I can use that are findable on Bloomberg?

Getting overnight-to-12 month LIBOR on Bloomberg is easy. Had difficulty finding GBP futures (range of maturities) on Bloomberg. Any tips (both USD and GBP)? Swaps (maturities all the way to 30 years) ...
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How to calculate the new price of a bond using duration rule and duration with convexity rule?

A bond with a 30 year maturity, par value of $1000 and is 8% p.a. coupon is selling at an yield to maturity of 8% p.a. The modified duration of the the bond at its yield is 11.26%, and its convexity ...
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64 views

How to determine the cash flows of a Mortgage backed security?

Suppose there is a $400 million mortgage pass-through security with a 7.5% pass-through rate, a weighted average coupon of 8.125% and a weighted average maturity of 357 months, how to compute the cash ...
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How to calculate the monthly cash flows of Mortgage Pass through Security?

Suppose there is a $400 million mortgage pass-through security with a 7.5% pass-through rate, a weighted average coupon of 8.125% and a weighted average maturity of 357 months, how to compute the cash ...
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224 views

Yield of a Bond

If we have a coupon bearing Bond and want to calculate it's Yield then what is the standard practice to determine the ...
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63 views

Is there some sort of index of products, their description, and pricing?

I'm imagining some sort of site where you can look up all sorts of products that are traded (swaps, bonds, options, and all the variations that they exist in), and then the site gives an extremely ...
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How do I hedge two/three zero coupon bonds with different maturity under Vasicek short rate model?

I am working on the case that I need to hedge two bonds with different maturites under Vasicek model, which is \begin{equation} dr_t=a(b-r_t)dt+\sigma dW^Q_t \end{equation} and I know how to price the ...
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Concavity of Cumulative Accuracy Profile curve

I am writing my thesis for the default probability estimation in low default portfolios. One way to estimate the probability of default is from the Cumulative Accuracy Profile (CAP) curve (Marco Van ...
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Convention for computing returns on bond futures

From the CME website, we know that the contract unit for bond futures is "face value at maturity of $100,000". Which of the following is more appropriate the convention to compute "...
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216 views

How to compute par yield from zero rate curve?

How does one calculate the below two-year par yield given the zero rate curve: Assume the following two-year zero rate curve, with continuous compounding: ...
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55 views

Proper way to calculate spread between bonds and Swap

In the place I work they are calculating the spread between bonds and swaps as follow... Bonds vs Swap spread = (Swap bid-ask spread) / (Bonds bid-ask spread) Is this the "right" way to ...
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147 views

How to price this Bond

I have below Bond - Issue date : 1/1/2020 Principal 1,000 Coupon : 8% pa Frequency : Semi-annual Tenor: 2 years This Bond has 2 specific characteristics - At the ...
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55 views

How to price an Annuity

When we price a fixed rate bond using Quantlib, we generally take below approach - ...
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39 views

Ultrashort ETFs and YTM

Currently I hold the ETF JPST with steadily declining yield. For example, the last published YTM was .81 on 6/30/20, and the most recent SEC daily yield was .57 on 8/7/20. My question, with JPST as ...
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76 views

Interest rate swap performance attribution

I have learned some attribution models such as Campisi. It decomposes the return of bond into treasury return, spread return, and coupon return. It works like: $$r = y\times dt - D \times dy_\text{...

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