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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4answers
60 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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Derive the Itô process S_t in the interval [closed]

I need some help with deriving a certain SDE. The SDE is as follows: 𝑑𝑆=ln(𝜇)𝑑𝑡+ln(𝜎)𝑑𝑧 The Ito process has to be derived for S_t in the interval (t_1,t_2) Thanks!
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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
93 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
71 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
68 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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74 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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164 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
44 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
83 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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29 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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35 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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32 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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60 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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131 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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73 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
76 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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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
110 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
176 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
43 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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58 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
113 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
49 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
51 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
89 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
103 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
57 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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2answers
56 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
290 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
110 views

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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28 views

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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1answer
364 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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1answer
88 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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1answer
142 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
187 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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0answers
36 views

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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1answer
58 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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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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1answer
61 views

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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2answers
103 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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2answers
70 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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70 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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65 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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1answer
50 views

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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99 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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1answer
34 views

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
155 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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