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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Yield curve and bond price

I am confused about how the yield curve is built and how it relates to the pricing of bonds. First what I don't understand is that when people talk about the yield curve, which yield curve are they ...
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Value the fair price of a 20y Bond

The on the run treasury bonds can only have the following maturities: $2,3, 5, 7, 10, 30$. With a $4$ year bond it's "easy" to evaluate it since we can compare it to the price of the $3$ and ...
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Switch and wildcard option in WN

I am trying to get a better understanding on the switch option for the WNM4 contract. Usually the wildcard is the only option that’s important for WN but now it’s complicated by the wildcard option. ...
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How is the fixed income market organized

For equities it's very simple, exchanges maintain an order book of the limit orders sent and the mid-price of the order book can be considered as the fair value of the stock. For Fixed Income market I ...
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How to compute Bonds volatility from Duration and DTS?

I recently came across article From Ad Hoc Bond-Risk Measures to Variance–Covariance Forecasts from De Jong and Fabozzi, where they show how to infer the variance (and covariance) of Corporate Bonds ...
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Long Bond & Interest Rate Futures Hedge - is it carry negative?

The situation is the following : A bank treasury book, finances its cash bond liquidity portfolio at Euribor 3m flat. The Euribor curve is deeply inverted. The bank invests in bonds with a positive ...
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Pricing a floating rate callable bond with rate scenarios, please help!

I need to price a floating rate callable bond in Excel. I am new to this and struggling to find good information on this specific situation. I have several rate scenarios until maturity, i.e. the ...
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Pricing a (general) callable floating rate note

I have a question generalizing this situation: Pricing Callable Floating Rate Note. I want to price a callable floating rate note, where the coupon can also be capped and the reference index can be ...
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Interest rate swaps - if i expect rates to be cut later than market expectations, what swap can I put on?

If I think market expectations are too dovish and I expect rates to stay high for longer i.e. rate cuts by X central bank to happen in September for example (as opposed to whats priced in, e.g. May), ...
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Any references on material for understanding fixed-income price discovery and occurrences of discrepancy in valuation between buy side/sell side?

Can discrepancies in pricing occur for bonds between the buy-side and sell-side ask, in addition to other complex structured credit offerings like mortgage pools? My understanding is quoted yields and ...
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Par Yield vs Spot Rate Term Structure

Using bootstrapping, i can derive spot rate curve from Treasury par yield curve. I added a couple extra maturities to the par curve, 60 year at +10bps to 30 year, then hold flat for the next 50 year. ...
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QuantLib calculations for a Canadian corporate fixed rate bond differ from BBG YAS

I am pricing a non-callable, fixed-rate, Canadian corporate bond with the following parameters: Name Value CUSIP 12657ZAT0 Evaluation Date 2/14/2024 Settlement Date 2/16/2024 Bond Issue Date 3/6/...
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How to calculate holding period return of a long-short strategy?

I have daily close prices of two stocks, A and B. Suppose that we long stock A and short stock B. Assume that we do the long-short every day and hold that portfolio for some days. How to calculate ...
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Intuition for why it's called "implied repo rate"?

I'm having trouble understanding, conceptually, why the rate of return for buying a bond, shorting the future, and then delivering the bond into the future is called the "implied repo rate". ...
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Bootstrapping annual and semi annual bond [duplicate]

https://www.wallstreetmojo.com/bootstrapping-yield-curve/ a) This is the standard method for bootstrapping: From the 0.5-year maturity the spot rate or the discount rate is 3% and let us assume the ...
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Allocating bond PnL in a similar way to swaps

In fixed income trading, a portfolio may have a large number of derivatives (swaps) positions which are typically aggregated into bucketed points on a curve and a PnL estimation is usually derived via ...
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WN 30Yr UST Futures Conversion Factor vs Delivery Ratio

What is the logic behind using the conversion factor in determining the hedge ratio of deliverable bonds in 30Yr UST futures (WN contracts) throughout the trading life of the contract, but then having ...
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Literature on PAA for Rates products

There is abundant literature on pricing interest rate derivatives, but it is a struggle to find much on the science and methods behind practical Profit Attribution Analysis (PnL explain) on fixed ...
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Model-free convexity adjustment

I have the settlement prices of 3-month SOFR IMM futures and I'm trying to compute the forward curve to replicate FactSet's results, but I have trouble understanding how they do the convexity ...
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What are the drivers for tapping a bond?

I believe there are several drivers which bring a government to tap a bond: Reduced issuance in that particular bond line Liquidity of the bond Attractiveness of the bond Price above par Could you ...
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Inflation Bond accrued inflation

Let's say an inflation bond has inflation adjusted coupons and nominal. With respect to dirty and clean price, is the accrued inflation of the nominal usually included in the clean quote? For example, ...
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Liquidity Preference Hypothesis and Yield Curve

Unlike under the Expectation Hypothesis (for which the forwards are perfect predictors of the expected short rates), for the LPH forward=expected short rates + LP and consequently the expected short ...
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Decomposing a bond's excess returns into duration, volatility, and market-price-of-risk. Discrepancy/confusion with Rebonato text

I am working on deriving the formula for the market price of risk for zero-coupon bonds and the associated formula for the excess returns. I am following the derivation in Appendix 12.6 of Rebonato's ...
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QuantLib FittedBondDiscountCurve does not produce expected rates

I am using the QuantLib library to fit yield curves. For a $\\\$100$ face bond, with price equal to $\\\$100$, and coupon equal to $\\\$0$, I would expect it to provide a zeroRate of $0.0\%$. However, ...
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How does historical data from bloomberg interact with timezones?

I'm running analysis on multiple countries bonds over a long stretch of time. I was asked about what determines the date of data in Bloomberg, ex: December 31st in NY will be January 1st in Japan and ...
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Pricing bonds using comparables

I have a corporate bond xy that I would like to price looking at comparable bonds, How do I identify comparables and what matrics should I look at to price my own xy bond? Should i just simply take ...
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OAS for securities products

Hello I’m new to quantlib so apologies for the stupid question. I want to calculate the OAS for various securitized products (e.g.,ABS,CMO,MBS, TBA). Is there a function to calculate the z-spread then ...
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Pricing Government Bonds use OIS or Gov. ZC Yields?

I am pricing government bonds ranging from JPN, GERMANY, UK, India to NIGERIA, MXN, ARG, Brazil etc. What is the better approach to use OIS for each currency or build a curve using government zero ...
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Market Maker Dynamics and RFQ

In the fixed income space, market makers, such as banks, often utilize platforms like TradeWeb. I'm seeking a clearer understanding of the workflow involved in this process. From my current ...
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US swap spreads

Traditionally US swap spreads were traded as LIBOR or OIS swaps versus USTs. In the former case the spread at the short end of the curve was very much a function of LIBOR repo spreads. Further, LIBOR ...
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Compare Spread On A Fixed Bond Vs A Loan/FRN?

I was discussing with a colleague, but in short, how do you compare a fixed bond vs a loan/frn when it comes to spread? Theoretically, you should get paid more for holding fixed bonds, as you have ...
Yuppity's user avatar
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mathematical proof of the hedge ratio formula for bond futures

We know that the hedge ratio ϕ_F that we should use in order to to the duration-hedging through bond futures is: $$ϕ_F= -(DV01_B / DV01_{CTD} )\cdot CF_{CTD}$$ Where $\textrm{DV01}_B$ is the dollar ...
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Is there a relationship formula between Bond YTM, ZSpread ( to OIS ) and OIS rate?

It seems to me that : $$\begin{aligned} P_{Dirty} &= \sum_i(\text{cashflow}_i * \exp( - \text{yield} * t_i ) ) \\ &= \sum_i( \text{cashflow}_i * \exp( - ( \text{OIS}...
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Any other ways to hedge a bond portfolio against interest rate risk? [closed]

I'm currently taking a (gentle) intro to derivatives class. One of the exercises asked me to discuss duration as a risk measure and to provide alternative methods of hedging a bond portfolio against ...
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Senior Preferred vs Senior Unsecured Bonds

What's the difference between Senior Preferred bonds and Senior Unsecured bonds. I understand the difference Senior Preferred vs Senior Non-Preferred bonds. But Senior Preferred and Senior Secured are ...
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Floor vs Receiver Swaption with Equal Strike

Let's say we have the following two instruments. A 5x10 floor (5-year floor, five years forward) with a 4% strike on 1-year SOFR and A 5 into 5 European receiver swaption (right to enter into a 5-...
lambda111's user avatar
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DV01 of 10-Year vs 1-Year Zero-Coupon Bond at 0% Flat Interest Rate Curve

As the title suggests, what are the DV01s of a 1 million principal zero-coupon bond with 10-year and 1-year TTM with an assumed 0% flat interest rate curve. I understand that the duration for both ...
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Can someone please suggest good books for Rates Structuring? [duplicate]

I am interviewing for with a bank for their Rates Structurer. Can someone please suggest literature I can go through.
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How do you interpret the portfolio DV01?

I am having trouble understanding the active dv01 of a portfolio? If the active dv01 of a portfolio is -10,000, what does that mean, all else equal? And what are different ways of increasing dv01 of a ...
the_brass_bottle's user avatar
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3 answers
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Market Makers how can they sell an asset they don't have

I'm having trouble grasping the operations of market makers. For example, consider Bank XYZ, which has set a bid-ask spread for T-Bond A at $90.1 (bid) - 90.2 (ask)$. Suppose a client of the bank ...
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Vasicek model calibration to bond prices or rates (no swaptions)

I need to calibrate Vasicek's model $dr_{t} = a(\theta - r_{t})dt + \sigma dW_{t}$ in a market with no swaptions. I was thinking in estimating $\sigma$ with historic data, but I'm in the doubt with ...
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What is "position" when referring to the holders of a bond?

A bond has a "holders" list, available on Bloomberg. I can see "held amount" of each party in USD, but what is the meaning of "position"? Is it a USD value (if you ...
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Modeling switch and wild card option for a Treasury futures contract

I understand how to think about the switch option and wild card option in Treasury futures. I know how to model them and get a fair value separately. However, I do not think you can simply just add ...
decaybeta's user avatar
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LQD and IG cash spreads

Can someone please tell me the relationship between LQD and IG cash spreads. what's the movement (widen/tighten) of the spreads can tell me about the market, supply and demand
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Why are we so focused on Zero Coupon Bonds?

In fixed income markets there seem to be two prevailing term structure modelling approaches: Market Models HJM Framework In Market Models, such as the LIBOR Market Model (LMM) and SABR it is common ...
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CMS diffusive dynamic

As I am landing on a project related to CMS option, I am wondering if one can write dynamic for CMS depending on the pricing model. For example, is it possible to have a diffusive dynamic for the CMS ...
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Does "locking-in" higher yields in long duration bonds make sense for the retail crowd?

The retail crowd often think that it is a good idea to buy long term bonds and hold until maturity to "lock-in" the current higher yields. I think that they are exposing themself to ...
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Can I use Nielson Siegel to 'interpolate' par yield

The NS model initially set a parametric form for forwards and we can get equivalent zero rates. If I have a few par yields, can I simply fit the par yields to the NS form or the NS form of the zero ...
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clarifying Treasury basis carry [duplicate]

I'm going through the classic The Treasury Bond Basis by Galen Burghardt. In the book he states, "...if the yield curve has a positive slope, carry for someone who is long bonds and short futures ...
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Bond future's roll (and other rolls)

I am missing some intuition on the above subject. Say I am long CTD basis (I.e. short futures): I may opt to hold onto my position till last delivery for many reasons, say switch, wildcard etc. Why ...
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