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.
1,163
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OIS curve, why a multi-curve framework is needed
I don't understand why multi-curve framework is now needed.
Here is my understanding:
The OIS curve is now the curve considered risk-free, and it's used to discount the cashflows for example to value ...
- 51
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2
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How to estimate the change in risk free yields curve based on equity returns?
In the context of stress-testing, what possible methods are there to estimate the change in the risk-free yields curve based on a hypothetical equity return ? I'm trying to estimate the change in ...
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FRN are more complex than we think
In most books I see that Floating Rate Bond trade at par. Yet I never see a detailed proof of why this is true. When trying to go into the maths I don't find this result.
I feel like it also depends ...
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70
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Mean-reversion strategy with bonds
I’m developing a mean-reversion trading strategy involving two bonds and have successfully identified a cointegrating relationship between them. This gives me a hedge ratio (beta) for my positions. ...
- 540
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50
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FRN where is the duration risk
If I take a floating rate note that pays compounded 3months sofr, I don't see why there is still IR risk.
Let's say my floating rate bond has a maturity of 1year and pays quaterly. So it's going to ...
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74
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IR vol trading and market making, how it works
I feel like I am familiar with index vol trading but less with IR vol trading.
What types of instruments are actually traded on IR vol desks at banks? Is it only swaptions or other products are also ...
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MBS Option Cost Thought Experiment
When one buys a mortgage backed security, one is long a straight bond and short a call option on that bond, with the option cost equaling the Z-Spread - OAS = Option cost.
Let us say that the Z-spread ...
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56
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DO as an option on bond future
I was reading about the bond basis trade and there are a few things I don't really get.
1- When someone is long the basis it means you buy the CTD and short the bond future. The bond future price can ...
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1
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68
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Does rate vol impacts treasury prices
I was reading about bond convexity and was trying to link it with my understanding of gamma for vanilla options.
My first question is: Where do we pay for convexity when we buy a Treasury Bond? In a ...
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71
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End of Month Switch Option calculation in Burghardt's Treasury Bond Basis
Burghardt, in his book, outlines the way one can value the government bond basis and value its richness/cheapness.
The steps are the following:
Calculate historical betas for yield changes
Create a ...
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In rateslib curve construction, how to control the jump size in step daily forward (log_linear), when i have 2 nodes on 1 instrument?
I have recently been trying to build a SOFR curve using SOFR 3 month futures. The issue I am facing is that when constructing a SOFR curve in the short-end, market convention is to use step forward in ...
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Dumb question / thought - bonds and taxes [closed]
This is probably a very dumb question and can extend to non-bond securities but bonds were the simplest example of this:
For simplicity's sake just assume rates are zero and a there is a 10% coupon 5 ...
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1
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261
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Why pay repo to finance bond position instead of reverse repo?
Assume I would like to hold a long bond, short future position over $n$ days. My current understanding is one must pay daily repo to finance the bond position, i.e. the below diagram. However, it ...
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Spread vs midswaps
I am trying to understand what the spread vs midswaps is. If I take the bond XS2696780464 as an example. I've shown the bond description/info and YAS below.
In YAS (third picture), if I fix the issue ...
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Roll down return for a bond index
Is there a way I can estimate the 1-year roll down return of a bond index? I am googling online and can't seem to find anything suitable.
Many thanks.
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CSRBB NIIS Modeling
I am seeking insight on how CSRBB NIIS for a Fixed Rate HQLA portfolio would be calculated? CSRBB EVE is understandable and IRRBB NIIS is also clear, however I am unable to make sense of how you would ...
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Pricing of securitised (e.g. CLO) products
I am looking for any appropriate textbooks/references for the pricing of securitisations such as CLOs.
I am looking at a pool of underlying corporate loans (some bonds, some ammortising loans, ...
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67
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Coupon schedule issue with initial coupon date
I am trying to match the accrued interest, clean price, dirty price, and duration from the iBoxx underlying data. I've come close to perfectly matching their measurements but have run into an edge ...
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Influence of Yield on the Cheapest-To-Deliver bond to honour a short position on a treasury bond futures contract?
In Options, Futures and Other Derivatives 11e by John C. Hull section 6.2 in the subsection 'Cheapest-to-Deliver Bond', the author claims that:
A number of factors determine the cheapest-to-deliver ...
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How to convert 3M IRS rate to 6M IRS rate without using basis swap?
I have a spot curve where the front-end points (1Y, 2Y) have a fixed/float frequency of 3M3M, while the rest of the points are 6M6M. I want to build a full 6M6M curve.
My question is: How can I derive ...
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41
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Intuition behind conversion factors increasing/decreasing for longer dated expiries?
I'm trying to intuitively reason why the below claim from The Treasury Bond Basis is true.
Conversion factors are unique to each bond and to each delivery month.
Note in Exhibit 1.3 that conversion ...
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1
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Charging for cashflow mismatch in Liability Driven investment
I am doing a course on LDI and the following question came up:
We are given a liability schedule. The liability is backed by a bond paying fixed coupons. The bond and the liability have the same PV ...
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73
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Modeling Yield Scenarios and Curve Shocks for Bonds
I would like to do the following:
Given a basket of bonds I want to generate different yield scenarios at a future time $T$ for the different bonds in my basket. I also want to see how I can shock the ...
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66
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Is fitting a curve through the ytm of UST bonds a par curve?
I'm wondering if fitting a curve through the yields given from market prices for bonds represents a par curve?
I've seen this question which is similar: Deriving the par-yield curve
My understanding ...
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86
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Yield curve steepner or flattener trades
Hi if anyone will kindly help to clear up some confusion that i might have.
Market is currently placing bets on a curve steepener trade due to Trump's potential election success.
Steepener trade is ...
0
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2
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107
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Different risk neutral measure
I don't understand in the following example how there can be a single risk neutral measure.
The risk free asset price $B$ at time $t = 1$ is $1+R$.
An other asset $S$ at time $t=1$ can take two values:...
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65
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Factor model bond futures
I was reading the Lehman Brother Multifactor Futures Model and there are a few things I don't understand in the way they implement their model.
Firstly, they look at the fitted yields. When they look ...
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0
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55
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How do i change face value of a Zero Coupon Bond in Python rateslib?
I'm currently trying to calculate the effective annual YTM of a Zero Coupon Bond with the following data:
Issue date: 2024/07/01
Maturity date: 2024/09/30
Settlement date (also date of valuation): ...
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88
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Asset swap spread components
Assume that an investor holds a bond and enters into an asset swap with a bank in which the investor pays the fixed coupon and receives Libor + spread
and the following data: 10y bond price 103, bond ...
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Are there closed formulas for non-callable defaultable floating rates in a reduced form models?
currently, I am evaluating for my company the possibility to price defaultable bonds with stochastic default intensity. Precisely, I am considering using the G2++ model where one factor is the ...
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1
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103
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Short bond convexity
Assuming you need to pick a bond to short. Is it better a bond with large or small convexity (all other things being equal)?
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How to value 3mo SOFR Spreads one year out, 2yr out
How does one value a 3mo spread spread in the far out future from present if fomc meeting schedule is only published for one year, and even with fomc's dot plot, it just shows the median expectation ...
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78
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Modified Duration vs. Real-World Bond Price and Yield Changes
We know that modified duration at time $t$ of a bond with maturity $n$ is defined as:
$$
D_{nt} = - \frac{1}{P_{nt}} \frac{\partial{P_{nt}}}{\partial y_{nt}}
$$
And the definition of a derivative is:
$...
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1
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145
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IRS Swaps market
I would like to understand who are the major actors in the IRS Swap market and what's the major reason of the volume traded for a certain tenor.
I am not able to find any of this information that ...
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1
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Swap/Bond basis: Bond rates "too high" or swap rates "too low"?
I suppose this question is more of a discussion piece than a question per se, so I apologize in advance.
I've long been fascinated by the large negative basis between government bonds and swaps. These ...
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Simple arbitrage pricing of bond option
This is Tuckman fixed income security textbook. The text here is trying to price a 990 six month call on a six month zero bond. When we replicate the portfolio, where is the F_.5 coming from?
My ...
4
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1
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311
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Calculating swap rolldown using the RatesLib Python Library
The code I am using is below, pulling in swap curves from BBG and then using RatesLib to price the swaps.
...
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What is the Italian BTP yield calculation in last period?
I chose this example becuase it highlight two aspects I can't reverse engineer and can't find any official source documentation.
BTP: IT0005518128: 1/Nov/2022 -> 1/May/2033 at 4.4%.
If this bond is ...
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Rates Curve 'Realising' vs 'Rolling'
Just saw an exchange on X and would appreciate if anyone could try their hand at going into a bit more detail (and even maybe using an example) to breakdown the conceptual difference of rates curves '...
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1
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110
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Proving that Convexity approx. equals Duration squared but something goes wrong?
I am trying to derive a formula for bond convexity that I saw in a textbook which states that
$$\text{convexity} = \frac{\text{Macaulay duration}^2 + \text{Macaulay duration} + \text{dispersion}}{(1+\...
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Estimating the price of an illiquid 5y bond futures contract
Say I know the price of 10y Gilt futures, 10y Treasury futures, 5y Treasury futures, and GBPUSD futures.
I am asked to produce a quote on 5y Gilt futures using only this data. What is a sensible ...
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Parallel shift in spot yield curve moves the IRR of a bond portfolio in the same direction: Analytical Proof
I am trying to prove that a parallel shift in the spot yield curve will as its effect have the IRR of a bond portfolio move in the same direction and by the same amount.
I have tested this on few ...
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Different CLOB for ONTR securities
I was trying to find the list of all the CLOB for on-the-run UST.
I know the following: BrokerTec, TradeWeb which both have different CLOB for ONTR UST.
I think Virtu Financial also has one, but I am ...
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1
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67
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What's the rate of return on a mortgage?
I'm trying to understand mortgages from first principles, from the perspective of a borrower.
Let $S_t$ be the price of the asset bought with the loan at time $t$ (i.e. house). Let $\alpha$ be the ...
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What are the assumption in the DTS paper
In the original Duration Times Spread paper from Arik Ben Dor
, Lev Dynkin, Jay Hyman
, Patrick Houweling
, Erik van Leeuwen and Olaf Penninga
, the authors define a change in spread as follows:
...
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Market Data UST
There a lot of new market data providers for retail algo traders.
For example the famous one for option is Theta Data Net and for Equities it is Polygon IO. You basically get all the greek/price data ...
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88
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Bond Basis (non CTD)
I had a query regarding the trading of non CTD (but deliverable) basis. Obviously someone can buy non CTD basis (buy cash / sell bond future), with the hopes this widens, clearly I would not want to ...
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Get bonds data in python [duplicate]
Anyone knows a way of getting trustworthy bonds data in python? I know that for stock there is yfinance package but it doesnt include bonds.
Thx
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Recommended Setup for QuantLib-Python AmortizingFloatingRateBond
I am trying to model a term loan in QuantLib-Python that makes quarterly interest payments at CME Term SOFR 3M + 10bps + 525bps paid in arrears with a 2 business ...
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101
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Why is accrued interest prorated linearly?
Cashflows from coupons and principal are discounted using the YTM to get PV of the bond in dirty price.
as shown here in this question
Misunderstanding of 'day counts' and accrued interest
...
