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Results tagged with fixed-income
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user 16148
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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How to value a called zero coupon bond?
It would not make much sense (from issuer point of view) for the bond to be called at full face value. It would be a windfall for the investor.
There is usually a set schedule of Call Prices and if …
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Time to maturity of a bond not divisible by payment period
As a general rule, unless told otherwise, start at the maturity date of the bond and work backwards: the last coupon payment will be at maturity, the one before will be 1 year earlier, then 1 year bef …
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What is the price of a bond that settles on its coupon date?
Yes, of course there is a market convention.
We can try to imagine how this worked in the 19th Century. The bond belongs to Mr. S, a wealthy capitalist. On 10/03 Mr. S is legally entitled to receive …
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How was money made from bond yield convergence?
This is the trade that made LTCM famous.
Italian yields were higher than German yields. The prediction was that yields of Italian bonds would become equal to those of German bunds. Since prices move …
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What does cash mean in the fixed income context?
Among people who trade bond options or bond futures, the term "cash" or "the cash market" is used to refer to the actual bonds.
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Calculating the Cost of Delay
These calculations are a matter of convention and standard practice (which are somewhat arbitrary, and not necessarily the way I would have defined it).
A compounding period is defined, which is by d …
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What is the "maturity" of an "investment option"?
The Theory of Corporate Finance is an academic field that tries to explain theoretically why companies issue the kinds of securities they do. The simplest company, a steady state business that earns s …
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How to convert bond options strikes to future prices
Look at the CMEgroup web site. 1300 means 130.0, 1305 would mean 130.5, etc. The decimal point is implicit. The minimum increment in the strike is 0.5.
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Bond interest rate, the relationship between a bond's interest rate and its present value, a...
The bond issuer (company or government) decides the Coupon Rate once and for all (though it is less important than beginners think). But the Promised Yield to Maturity (PYTM) is going to be set in the …
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How is Bloomberg's fixed-equivalent yield on a floater calculated?
Quote [fixed equivalent] yield is determined by assuming the coupon rate on the floater is swapped to a synthetic fixed rate and then solving for the internal rate of return. Endquote link
In other w …
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A very simple question about convexity of a bond
The chart you posted does not give a correct visual representaion of convexity . Convexity is not $\frac{\partial^2 P}{\partial y^2}$ but $\frac{1}{P}\frac{\partial^2 P}{\partial y^2}$. So you have to …
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Market Makers how can they sell an asset they don't have
Most market makers keep some inventory. Just like a supermarket has a stock of food ready to sell. I don't think you can call yourself a market maker and have zero inventory at all times. But it may b …
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Pricing of fixed income securities
When a corporation is thinking of issuing a bond, the CFO will contact an investment bank and ask some questions, including what kind of interest rate would we pay? A newly hired IB employee will do a …
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what is the rationale behind CTD (Cheapest to Deliver) mechanism in bond futures
Sometimes there is not much liquidity in a particular bond issue and it could become scarce and shoot up in price vis a vis others. Then there would be accusations that someone is manipulating the pri …
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