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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567 views

Valuing an interest rate swap using a par swaps curve?

I've worked through this problem already and was hoping for some feedback on my approach. The problem description is: You have a notional amount of 100 million paying fixed coupons of 8% annually for ...
3k 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 ...
112 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 ...
378 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 ...
140 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 ...
373 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 ...
1k 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 ...
1k 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. ...
1k 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, ...
751 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 ...
550 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 ...
71 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 ...
650 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 ...
259 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 ...
65 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 ...
1k 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 ...
129 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).
259 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 ...
1k 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 ...
145 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 ...
129 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 ...
198 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 ...
196 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 ...
1k 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 ...
129 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, ...
1k 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 ...
59 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 ...
54 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 $$dr=(\eta-\gamma r)dt + \sqrt{\alpha r} \space dX$$ ...
604 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 ...
271 views

Duration of a FRN in continuous time interest rate model

This question was inspired by my attempt to understand the duration of a floating rate note, or FRN for short. Several answers, like this, say the duration of a FRN is just time to next coupon payment....
394 views

What is the value/price of a bond paying floating rate

I am going through J.C.Hull for swaps. Where he says we can value a swap using bonds. Let $B_{fl}$: value of floating rate bond, $L$ notional principal. Why is $B_{fl} = L$ just after a payment ? What ...
218 views

Convertible bonds pricer - implementation

Where I can find numerical implementation (in any programming language) of convertible bonds pricer based on the following article: E. Ayache, P. A. Forsyth, K. R. Vetzal, "The Valuation of ...
210 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
793 views

Swap Curve and Forward Libor Rates

How does the (interest rate) swap curve incorporate forward libor expectations?
389 views

Why do Treasury Futures settle at maturity with higher yield-to-maturity than the corresponding spot rate? [duplicate]

Absolute beginner on bonds, trying to understand why spot rates seen for US-T don't seem to line up with CME futures for ZT/ZB/etc at their maturity. For instance, ZB-U8 seemed to settle at 140-27 on ...
139 views

Lottery calls on municipal bonds

I'm trying to independently price several municipal bonds with lottery calls. Based on market prices/yields I can tell that the price, ytw, etc. is not based upon the first viable call. What is the ...
55 views

Bond and Stock Relationship

Is there any formulair relationship between the price of a corporate bond and the stock on the same company?
163 views

What discount rates should I use to price a municipal bond with unknown market price?

I have a payoff structure but I do not know the price of the bond. The bond is municipal. What discount rates should I take for each period in order to calculate its fair price?
64 views

Using above par zero coupon bond to build a zero coupon curve

Should I discard bonds above par (zero coupon bond with market price over par value) when I build a zero coupon curve? Most of the academic textbooks use bonds below par as inputs to build Zero ...
713 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 ...
232 views

YTM of “very-seasoned” bond issues

There is a liquidity premium between on-the-run treasury issues and off-the-run issues with similar characteristics. This is why when building a yield curve, typically on-the-run issues are used to ...
85 views

Strategy in steepening curve environment, stable spreads - HotS interview problem

The following problem was found in "Heard on the Street": You construct a yield curve for (coupon-bearing) treasuries. A particular five-year corporate zero-coupon bond has a default risk ...
160 views

Zero Coupon Curve and Floating Rates Notes pricing

Simple question: Can I use a Zero Coupon Curve (using Treasury or Swap Curve) to price floating rates notes (FRN)? I am building a classic Zero Coupon Curve, however I wonder if I can use it to ...
342 views

how to change the value set by the addFixing method in QuantLib

Suppose we have had constructed an index for forecasting future interests of a floating bond, and as suggested by the official document, I used addFixing method to set a past fixing for the current ...
161 views

Why Arent There Long Rate Models?

You have short rate models, https://en.wikipedia.org/wiki/Short-rate_model, but there doesnt seem to be any long rate models. I find this weird as in options modelling you model the whole smile, not ...
1k views

Hedging Ratios for Fixed Income Instruments

If you buy a corporate bond and you want to hedge the interest rate risk, how would you know how many interest rate futures/swaps to hedge the bond with? The same with an MBS security, if you want to ...
573 views

How to calculate implied repo of a hypothetical bond that has not been issued?

I want to calculate the implied repo to a delivery date for a series of bonds that have not been issued yet. Do I make assumptions about the bond yields on some trade settlement date and the futures ...
402 views

How to compare bonds in terms of volume traded in Bloomberg Excel Add-in?

I want to compare how much bonds of a handful of companies have been traded over the last years and pick the most traded bond for each company via the Excel add-in. One example of what I have tried ...