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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48 views

Treasury Benchmark and Bond Pricing

I'm trying to figure out the connection between the following quantities but no luck so far. ...
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46 views

Option pricing under Vasicek, CIR, H-L and BDT model

I have implemented and calibrated recombining trees on Excel for the Vasicek, the Cox-Ingersoll-Ross, the Ho-Lee and the Black-Derman-Toy model. I now would like to price some options with these ...
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Covariance matrix of the returns of defaultable bonds

How can I compute the covariance of bond returns for a universe of bonds? Unlike equities, bonds have a finite maturity and thus there is a price path dependence as the bond matures and expires at par ...
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38 views

Pricing bonds with different coupon frequencies

Suppose that I have to price a bond that pays fixed rate coupons every three months but all other bonds of that issuer pays coupons every six months. Furthermore suppose that the six months bonds are ...
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85 views

How to backtest with fixed-income instruments

I'm running a backtest with the 5-yr and the 30-yr treasury bills going back to 1990, both with a weighting of 25%. How do I use their daily yields to adjust the portfolio through time? I've thought ...
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Book that considers stochastic interest rate models in discrete time?

Are there any books that covers interest rate swaps, futures, forwards etc. but have a discrete time model? I would like to go deeper into this without having to worry about the stochastic calculus. ...
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1answer
126 views

Coupon Adjusted Spread vs Z-Spread

Hi so I'm trying to figure out how to adjust for the coupon value in the Z-Spread of a given bond. For example we can take UKRAIN 9.75 11/28. The coupon is 9.75 which is quite a bit higher than the ...
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130 views

popularity of MOVE volatility index vs. (strikeless) TYVIX indices

I have a question about rates volatility indices and how indexation around this space seems to be fractured and relatively illiquid in comparison to the explosive success of the VIX index in equities. ...
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Pricing kernel representation

I am reading this paper https://mpra.ub.uni-muenchen.de/4969/1/MPRA_paper_4969.pdf pp.6-7 on discrete-time bond pricing. The model adopted is a a common affine model, the short rate follows \begin{...
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How to Calculate monthly excess returns from 3-Month Treasury Bill: Secondary Market Rate

I'm using portfoliovisualizer with their "dual momentum" function, I have selected out of market asset as cash, and left everything else as default - hopefully this link takes you straight ...
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1answer
114 views

Cash flow mapping on multi curve framework

I am trying to map cash flows according to FRTB pillar dates, on an Interest Rate Swap fixed Vs Euribor 6 months. Using the sensitivity preserving approach, under the OIS framework, this has to be ...
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What is "risk-hit ratio"?

In this article https://www.risk.net/awards/7741391/flow-market-maker-of-the-year-citadel-securities describing Citadel Securities the market maker, it says The firm’s electronically executed US ...
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196 views

What does a electronic dealer track in a RFQ market?

If you have mid price for rfq market in fixed income. What is the internal order book tracking at a bank? Customers dont place limit orders or do they? There arent any other market makers on your ...
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How is the “constant maturity” 10 year treasury calculated?

The Fed’s historical chart of the 10 year treasury yield is titled “10-Year Treasury Constant Maturity.” How exactly is the yield calculated?
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How do I calculate the bond index in case of the presence of corporate actions? to prevent a change in the value of index due to corporate actions?

I want to make index for the bond market, I read several methodologies and I didn't find a divisor in the equations used for bond index calculation. As i know from the stock indices that a divisor is ...
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195 views

How do I hedge yield spread?

We'd like to offer a product in which a notional amount $(N)$ is given, and the underlying is spread $(s)$ defined as, say, 30Y yield minus 10Y yield (both from treasury YTM yield curve). At the end ...
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175 views

Extracting the OAS out of an MBS?

I was reading about OAS and I'm wonder how one could "extract" (or "capture") the OAS out of a product by hedging out all the other risks. One of the explanations I got from OAS ...
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How is Inverse Super Floater built?

I am pretty new to fixed income and came across to a product called Inverse Super Floater. I am wondering, what are the components of this product assuming issue price of 100 (redemption amount of 100 ...
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1answer
222 views

Day-Count-Conventions T-bills, T-notes and T-bonds

I have a question regarding the day count conventions for T-bills, T-notes and T-bonds. So far I haven't found an official page that clearly states which method is used and I don't own bloomberg etc. ...
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47 views

Nominal bond yields vs. TIPS yields?

I am struggling with understanding the difference in yields between nominal bonds and inflation-adjusted bonds. With inflation adjusted bond like TIPS, every coupon payment in addition to the face ...
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What are some advanced methods for bond risk transformations?

Consider a portfolio of bonds within a given yield curve (e.g. Gilt curve), consisting of positions in every bond in the curve. I'm looking for ways to transform the risk of the portfolio into ...
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79 views

How to convert 3-month ED to 6-month LIBOR?

I know 3-month Eurodollar future prices and need to convert it to 6-month LIBOR. I calculated the 3-month LIBOR as : (100 - ED price) / 100 How to continue from here? Thanks for the help. Edit: I can ...
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135 views

TIPS (Treasury Inflation Protection Security) Information

I've recently been learning about TIPS and their role as an inflation protection instrument. If you buy a TIP even when it has a negative real yield-to-maturity, is it still possible to have a ...
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1answer
91 views

Bond's price expressed as a % of par

the following is causing a bit of confusion... In some countries, e.g. Brazil, I saw the bonds are quoted in "Unitary prices" (PU). If we pick an example where: ...
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47 views

Carry and expected return of a short bond basis position

If we assume net basis is 0, the bond trades above par, the bond’s yield > than the term repo rate, what is the expected pnl of being Short the ctd vs long futures? I would have thought the ...
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315 views

Carry and Pull to Par of a bond

I am of the understanding the true carry of a bond is yield - repo rate. And not simply coupon + repo cost because this doesn’t ...
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33 views

Euribor + margin

I have this bond assigment where I have to calculate the CF each quarter, given a constant EURIBOR3M rate of -0,539%. There is also a 1,6% margin per annum that I have to take into account. The ...
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87 views

How accurate is YTM as a reference measure of non-holding-to-maturity return?

We need to offer an estimated return of a non-hold-to-maturity strategy. Essentially, we borrow money from the market and buy a bond. Instead of holding the bond to mauturity and locking in a return ...
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1answer
96 views

yield vs OAS for floaters

I am wondering what metric is better at incorporating credit risk, is that OAS or effective yield for the floater coupon bonds? What intuition each of them carries out? When would I use or the other ...
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75 views

Is the price of the following inflation derivative observed/traded?

Let $M_{t\to t+2}^{\\\$}$ be the pricing kernel (SDF) from period $t$ to $t+2$. Let inflation over period $t$ to $t+1$ be denoted by $\Pi_{t \to t+1}$. Is it possible to observe the following quantity ...
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46 views

Using compound interest rate in wrong way

I will explain the problem with an example. Today (14/03/2021) y agree a Zero-Coupon Mortgage with a nominal of a milion dolars an with an annual interest rate compounded annualy and with an ACT/360 ...
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1answer
59 views

What are the eurozone bond indices? And where can I find them?

I am trying to calculate the performance of a portfolio of fixed-income funds domiciled and operating exclusively in Europe through a multi-factor model. To do this I need historical data of several ...
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60 views

Short rate models practical textbook

Currently working on a validation and testing of a yield curve model (one factor short rate model). Have been reading Andersen and Piterbarg, and Mercurio and Brigo. Good for true understanding, but ...
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3answers
102 views

OHLC Data for US Govt. Treasury Yields?

Is there open-high-low-close data available at the daily timescale for yields? The data I can find from the Federal Reserve reports only one price, and moreover, I'm not sure when the data is reported....
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1answer
203 views

Breaking out Swap curve + z-spread from a bond

A colleague mentioned the following: She wanted to look at some bonds in Reuters/Bloomberg to see if they if they "correctly break-out the swap curve and z-spread". Would anyone understand ...
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2answers
121 views

How are repo rates / repo haircuts determined?

Sorry if this question is a little too basic but what determines repo rates? Not like "they are OTC transactions so they are determined directly between counterparties" but like what is the ...
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1answer
55 views

Can both good buying and good selling cause a bond to go special on repo?

A bond is known to go special when its repo rate gets particularly low relative to the GC (General Collateral) repo rate. In my mind, this can be caused by two scenarios: 1. Institutional interest to ...
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1answer
123 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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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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221 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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201 views

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
118 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
111 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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78 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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31 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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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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2answers
111 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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495 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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152 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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91 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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