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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1answer
73 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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22 views

Cross-checking Treasury's Major Foreign Holders Report

I was looking for bad things waiting to happen on the Ides of March, and the next Major Foreign Holders of Treasury Securities report came up as a candidate. It is due on March 15th, 2021. The report ...
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2answers
187 views

What is the best way to interpret changes in Treasury yields?

My question is quick and simple. However, I would like to use this answer to further my understanding of bonds and yields. If the YTM on a 10yr Note yesterday was 1.00% and the YTM on the same 10yr ...
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Bounds using different lending and borrowing rate [closed]

Suppose the borrowing rate r_B = 10%r B ​ =10% compounded annually. However, the lending rate (or equivalently, the interest rate on deposits) is only 8%8% compounded annually. Compute the difference ...
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1answer
102 views
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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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1answer
67 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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1answer
105 views

Why pension and insurance hedgers push the long end of the curve down

It is sometimes said that “pension and insurance hedgers push the long end of the curve down” Explain how this happens and why- what are the connected steps? What do these players do and why? How does ...
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69 views

Bond yield with known DV01

Is there a way to calculate the yield of a bond knowing the DV01 and duration (numerical values) and knowing all other parameters of $V$ (maturity, coupon, etc.)? $$DV01=-\frac{\partial V}{\partial y}$...
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2answers
30 views

UK Government Debt Statistics

I would like to find some stats regarding UK Government debt. Any leads ? I am looking for following questions Debt / GBP ? ( Got it already ) Debt profile ( by maturity, instrument) New debt ...
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0answers
32 views

Simulating a square root process with jumps for mortgage defaults

I am trying to simulate the paydown of a large pool of mortgage loans. For each monthly period, I am reducing principal by the scheduled principal payment (approximated by the WAC of the underlying ...
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1answer
74 views

Regressing changes in yield/yield curve

If I'm regressing changes in individual points along a yield curve and measures of changes in level/slope/curvature of that yield curve against the returns of some random variable then do I want to ...
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0answers
88 views

A few questions on duration and convexity for floating-rate bonds (interpretation and formulae) [closed]

I have a couple of points I would like to confirm / ask about duration and floating-rate bonds: Macaulay duration is a weighted average time until repayment, where we weight the PV of each payment by ...
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3answers
310 views

How can a deep discount bond with a longer time to maturity have a LOWER duration than an otherwise identical bond with a shorter time to maturity?

Here is a brief excerpt on the fixed income chapter from the 2020-2021 level 1 CFA curriculum: Generally, for the same coupon rate, a longer-term bond has a greater percentage price change than a ...
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3answers
69 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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1answer
73 views

Are government bond yields usually expressed as yield to maturity (YTM) or annual yield?

If US 10yr = 2%, does it mean if I hold the bond until maturity/for next 10 years the yield is 2% or I get an annual return of 2% for 10 years? For example the yields in the link: https://www....
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1answer
45 views

Why does holding a linker give you positive carry when inflation indices move up?

My book says: "By construction, the cash flows of inflation linked bonds are indexed, using daily indexation factors that are applied to the real price of a bond to arrive to the dirty price of ...
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1answer
66 views

China carry trade, borrow in the repo market and invest in govies

"Excess funds in the banking system had juiced leverage in financial markets by driving China’s overnight repo rate to a record low of 0.59% in December. The cheap short-term financing enabled ...
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0answers
45 views

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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3answers
111 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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39 views

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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35 views

Bonds portfolio - total return

TRICKY QUESTION ON BOND PF RETURNS I am working on a bond portfolio, so for each line i have a monthly price change (equal weighted by the numebr of bonds in the portfolio this month) then the return ...
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4answers
65 views

corporate bonds - general questions [closed]

Newbie here and not trading IRL but for a school assignment. I want to buy corporate bonds because they are a safe bet from what I read. I have a few questions though, I hope I will find an answer ...
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46 views

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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4answers
109 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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1answer
83 views

Understanding Asset Swap Spread Example

Here is an overview of the asset swap spread I found online: https://www.deriscope.com/docs/AssetSwaps_LehmanBrothers_2000.pdf I can't seem to make sense of the numbers in this example: Specifically, ...
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2answers
85 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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1answer
79 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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0answers
192 views

Reduced form of credit model

The price for a simple credit bond, where a credit event is modeled as the first jump of a Poisson process $N$, with stochastic hazard rate $\lambda$, is given by $$P_t = P(t, \lambda, N)$$ such that, ...
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1answer
48 views

Replicating the price of a (Bermudan) callable bond using a Bermudan swaption and bond

I have heard that the price of a (Bermudan) callable bond can be replicated (at least approximately) by a Bermudan swaption and ordinary bond (assume the callable bond pays a fixed coupon). I was ...
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2answers
149 views

How does one calculate carry-roll-down theoretically assuming expectations of short-term rates are realised

I am not asking for an explanation that is hugely quantitative, but rather one that is more intuitive. I am aware that there are different assumptions that one could take when it comes to carry-roll-...
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31 views

Credit VaR for this portfolio assuming no default correlation and no recovery?

I am trying to estimate the Credit VaR for a portfolio of two risky bonds. The Credit VaR is defined as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon. Assuming ...
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36 views

Return of a bond held to maturity and realised forward rates

Let's assume that forward rates are realised as part of a carry-roll-down scenario. The gross return of a bond under the realised forward assumption to maturity is: $\frac{c(1+f(2))(1+f(3))...(1+f(T))}...
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1answer
37 views

Calculation Expecting Credit Loss from a Portfolio

I have the following question: An investor holds a portfolio of 50 million dollars. This portfolio consists of 'A' rated bonds (30 million dollars) and 'BBB' rated bonds (20 million dollars). Assume ...
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2answers
76 views

Vasicek Model (estimation of parameters)

I have a question concerning the "choice" of parameters for the Vasicek model (formula below). Consider me as a moron with below average level in maths haha. What I've done is basically run ...
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2answers
176 views

Why does the coupon effect mean that higher yields do not necessarily mean that a bond is more attractive?

In Tuckman, it says "The fact that fairly priced bonds of the same maturity but different coupons have different yields-to-maturity is called the coupon effect. The implication of this effect is ...
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1answer
77 views

How does this formula for the price of a bond in terms of forward rates work?

I am currently reading Chapter 3 of Tuckman's 'Fixed Income Securities' and it states that we can write the price of a bond using its term structure in terms of forward rates but with periods of ...
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1answer
84 views

Portfolio Duration . Dirty or Clean Price? [duplicate]

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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39 views

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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1answer
113 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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1answer
179 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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1answer
46 views

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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65 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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1answer
117 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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1answer
52 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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1answer
54 views

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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1answer
239 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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1answer
143 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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1answer
58 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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3answers
70 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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0answers
40 views

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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