Stack Exchange Network

Stack Exchange network consists of 175 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange

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.

2
votes
3answers
136 views

How does one price the market value and estimate the fair value of a bond futures roll?

Consider the current situation: we are entering December, meaning that the December futures are being rolled into the March futures (i.e. traders are selling their holdings of December futures ...
2
votes
2answers
48 views

How can we compute the daily drop in gross basis?

Background The implied repo rate (IRR) is essentially the carry for going long basis (buying the deliverable bond and selling the futures contract). For this reason, it rises in value day-by-day as ...
1
vote
0answers
40 views

How to calculate the fair value of a futures roll and what are the practical uses?

Last month, I spent some time calculating the fair value of a futures contract in preparation for the current futures roll period. I've backtested it and noticed that fair roll generally gives me an ...
1
vote
2answers
90 views

Carry and Rolldown of a Premium bond

I'm hoping that you may help me understand how the pull to par of a premium bond impacts the carry and roll calculations over a year. I understand that carry = Coupon income - cost of funds and that ...
2
votes
2answers
45 views

Standardized numerical values for ratings

Is there a standardized way of transforming the ratings of any of the major ratings agencies (S&P, Moody's, Fitch) to a numerical value. Ideally, it might be possible to create a similar scale for ...
2
votes
1answer
75 views

How to derive and interpret the duration of a call option?

I read here that CFA students are taught that $$ D_{C} = \frac{\Delta_{C} D_{B} B}{C} $$ Where $D$ is the duration, $\Delta_{C}$ is the first derivative of the options price with regards to the ...
0
votes
0answers
33 views

Risk mapping a zero-coupon bond portfolio

I'm trying to understand example 2.6 taken from McNeil and Embrechts "Quantitative Risk Management". The example consists of obtaining the risk mapping of a portfolio of $d$ zero-coupon bonds. The ...
0
votes
0answers
27 views

Difference between Notional and Market [closed]

What is the difference between: A position in an asset (bond) w/ market value = 50 million 50 million notional of the asset (bond) I am still a bit confused about the distinction between these two....
15
votes
0answers
235 views

What is the trickiest thing to get right in Rates Quant recently (2019)?

What are the biggest challenges for Rates Quants in 2019? Most quants have been through a lot over the past years-shifting their SABR models in JPY swaptions, fixing the FVA models for negative rates, ...
5
votes
1answer
83 views

CMS Pricing - Convexity Adjustment by Replication [closed]

I'm trying to learn CMS pricing, but didn't get the logic of this method. Previously cited articles about this method is pretty complex. I'd be glad if you can provide me with simpler articles or ...
2
votes
1answer
64 views

Measuring bond fair value (richness/cheapness) using basic regression models?

Background Due to the nature of the curve (bond curve, swap curve etc), bond traders typically have some model that allows them to measure the "fair value" (FV) of a bond vs other bonds on the curve. ...
3
votes
1answer
102 views

Trading Jargon - Interest Rate Swaps / Bond Trading

I was going through some reports but having hard time with the jargon. When I google them online I came across the page: http://volcurve.blogspot.com/2007/10/carry-and-roll-down-back-to-basics.html ...
3
votes
2answers
69 views

Hedging treasury bond with Eurodollar futures

I was reading Interest Rates Markets by Jha, and on p. 214, he describes hedging a 5 year treasury bond with a ED future strip, as described below. He says the best hedging quantity can be generated ...
0
votes
0answers
75 views

Interview question on interest rate spread trade

Consider this interview question: Tell me how you'd construct a risk neutral cross country trade on the 2 year – 10 year interest rate spread in Germany and the U.S. What does "risk neutral" mean ...
2
votes
0answers
44 views

Fixed Income portfolio type

Could someone kindly point me toward a primer that would cover the various type of fixed income portfolio strategies under modern portfolio theory ? In a nutshell, I would like to know what kind of ...
0
votes
4answers
910 views

How to download bloomberg intraday data efficiently with API

so I would download a bunch of intraday data, for a bunch of securities, but we keep hitting our monthly cap limit. We don't want to upgrade to a more expensive package as this is simply a research ...
3
votes
1answer
86 views

Good References for Treasury Futures Spreads

I’m reading the excellent Treasury Bond Basis by Burghardt. I was wondering if there’s a similar quality book/paper about Yield curve spreads using treasury futures (i.e. NOL, NOB, FYT).
2
votes
1answer
108 views

What is a central bank's shadow rate

I was reading a WSJ article about the European Central Bank shadow rate, which is -5.1% at the moment. The article says about the shadow rate that "Calculated with the rates on longer-dated credit ...
1
vote
0answers
43 views

Creating yield curve from exchange-listed products only?

For use in subset of my thesis, I’ve been given some exchange market data for several exchange-listed products, including Eurodollar rate futures as well US treasury futures and Fed Funds futures. I ...
4
votes
0answers
47 views

What are the trade offs when choosing a long term bond future to trade?

It seems that when trading long term bonds *** and choosing between the two offerings on CME one is presented with a Scylla and Charybdis decision. 1. VOLATILITY CONSISTENCY: Ultra U.S. Treasury Bond ...
3
votes
1answer
49 views

How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?

Looking at the excellent CME Treasury Analytics tool, I can see that the hedge ratio for spreads betweend diff treasury futures is derived from the DV01 of each leg. I can get treasury futures data ...
3
votes
4answers
310 views

Bond ETF vs Bond Future for longer term holding

How would a long term investor go about evaluating the prospect of investing in a bond ETF vs a long position in a future of equal duration? Let’s asume this investment is in a taxable account. Let’s ...
0
votes
1answer
447 views

Do FRN's *always* trade on par on reset days, regardless if the issuer's credit quality has changed?

I keep reading that floating rate notes trade on par on coupon reset days. Is this always true, regardless of changes in the issuer's credit quality since the FRN was issued? It seems probably ...
2
votes
1answer
94 views

Sovereign bond CDS data

Does anyone know where I can download from historical data for sovereign bond CDS (credit default swaps) rates? preferebly free?
1
vote
1answer
82 views

CDS Spread sensitivity

I am computing HVaR for corporate bonds using CDS spread to approach credit risk. I have data on cds spread for different maturities along the bond life and I need the sensitivity to spread change for ...
0
votes
0answers
22 views

Getting security-level fund holdings, quarterly, from 1940 Act Funds (particularly Fixed Income)

Mutual funds of a sufficient size operating under the 1940 Investment Company Act are required to disclose their security holdings to the SEC on a quarterly basis. I understand that Morningstar also ...
2
votes
1answer
277 views

Why Hull White 2 Factor model can't capture vol skew?

Is there a way to stay with the short rate model (like HW2F or G2++) but extend it to capture vol term structure (vol smile or skew). What happens if I calibrate HW2F to OTM swaptions? (I don't want ...
1
vote
2answers
112 views

Choosing a proxy for asset credit event correlations

I'm interested in modeling the joint likelihood for rating changes and default events across a portfolio of bonds. To estimate the correlation between these assets, I can use a third-party factor ...
1
vote
2answers
255 views

Floating rate note value approximation

I was hoping somebody can assist me with a query. Would it be a valid approach to revalue a frn with a discount margin from a comparable bond as par minus the difference between the quoted margin and ...
1
vote
2answers
69 views

Why do constant maturity bonds account for modified duration?

One can create a constant maturity treasury (CMT) by building a zero coupon discount curve and generating constant maturity bonds from that curve. This allows one to look further back than is possible ...
1
vote
2answers
288 views

Bond fund's roll and carry

This is a question about modelling the returns of a bond index. Understand there's quite a bit about the roll and carry of an individual bond, but what about a bond index. Roll I would calculate the ...
1
vote
1answer
102 views

Positive convexity swaptions

Can I please understand why payer swaptions have positive convexity and receiver swaptions have negative convexity? I understand payer swaptions are akin to put options on bonds and put options have ...
2
votes
1answer
940 views

Bank discount yield and money market yield

I have a question regarding Bank Discount Yield and Money Market Yield for US TBill. Some books mentioned that ...
5
votes
2answers
373 views

Question about using binomial interest rate tree to value callable bonds

When we use a binomial interest rate tree to value callable bond, we work backward, right? If any computed bond value is larger than the call price, the bond will be called. The call price will ...
8
votes
1answer
633 views

Issue with OLS Regression for Nelson Siegel Svensson parameters

I have been working on getting input parameters to the Non-Linear Optimization which gives the Nelson Siegel Svensson model parameters and am carrying out the OLS regression as described in this ...
1
vote
0answers
57 views

Yield Curve Trading Strategy Explaining Books

Recently I really enjoyed being here while getting great recommendations. Would like to thank you all. Could you please recommend some books/papers on trading strategies, lets say yield curve ...
0
votes
1answer
106 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 ...
1
vote
1answer
385 views

Is Libor a martingale under T-forward measure

We denote discount factor $D(t)$, and zero coupon bond $B(t,T)$ as: $$B(t,T) =\dfrac{1}{D(t)} E_t[D(T)]$$ here $E_t[X] = E[X|\...
1
vote
3answers
54 views

What's a reasonable way to extrapolate a bond curve?

I have a corporate bond curve which stops at 15 year maturity. I want to extrapolate the curve to 25 year maturity. I'm looking for a reasonable approach, not necessarily deeply technical. Thanks ...
1
vote
2answers
111 views

Why rise in repo rates leads to increase in forward bond prices?

Why repo rates increase is causing forward price of bond to increase. Confused with two arguments below Explanation 1 (Collaterizied loan) If repo rates are higher then it means that its very high ...
0
votes
1answer
64 views

Bond Overall Return vs Yield to Maturity

I've been working on what I had hoped to be a simple model demonstrating that a bond "returns" its yield-to-maturity over its life. However, whatever data I use, I end up with a return that is a ...
1
vote
2answers
372 views

Fixed Income VaR: Yield Vol vs Cash Flow Mapping

I have come across two ways of measuring VaR for Fixed Income instruments thus far: Express the volatility in of basis points and the position in terms of sensitivity to a 1 basis point movement in ...
2
votes
1answer
219 views

How do swap dealers make money from trading cancellable swap?

A fixed-rate payer (e.g. a swap dealer) of a cancellable swap pays more interest than he receives because he has the right to terminate the swap after a certain time if rates fall. What are the ...
1
vote
1answer
122 views

get base asset price for bond future

Is it possible to obtain the base asset price (underlying price) for futures using the first and second periods future. like let's say we have $ FGBL_1 $ first future and $FGBL_2$ second future. $ ...
7
votes
6answers
306 views

Investment Grade Bond vs Junk Bond, whose duration is larger?

Just wondering how to calculate duration when take credit risk into consideration. I think if duration is calculated as weighted average of cashflow time, and weights are calculated using present ...
1
vote
2answers
100 views

Paper recommendation with examples

Could you please advise me some papers/working documents with applications mainly focused on Fixed Income/Financial Engineering (Numerical Methods) as the one in the link below? Preferably on Matlab, ...
0
votes
2answers
49 views

Time to maturity of a bond not divisible by payment period

I am relatively new to the topic of quantitative finance - at the classes I got an exercise about "2.5 year bond payed annually". Therefore I have a question about the time of payment of interest. The ...
4
votes
2answers
1k views

Key Rate Duration for MBSs greater than Key Rate Tenor

Key Rate Durations (KRD) are essentially some fixed income instrument's price sensitivity to a non-parallel shift in interest rates (i.e., a shift at the "Key" Rate). For example, a 10-year bond's ...
1
vote
0answers
23 views

Derivation of CIR interest rate model [duplicate]

I am trying to understand the derivation of the Cox-Ingersoll-Ross interest rate model. This has a stochastic differential equation of the form $$dr=(\eta-\gamma r)dt + \sqrt{\alpha r} \space dX$$ ...
2
votes
2answers
116 views

Reconstruct yield curve from principal components

I am currently building a model which aim is to model shocks to the yield curve (i.e. 25bps hike in the short rate). Currently I am looking at a swap curve from which I derive the PCs. Assessing the ...