17 votes
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What are some of the best textbooks on Fixed Income securities?

If I were to recommend one, it would be: Bruce Tuckman's Fixed Income Securities. This is by far my absolute favorite. It is extremely well written and discusses complex concepts in very easy-to-...
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9 votes
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Do we use the Nelson-Siegel model to calculate the yield curve?

In the beginning, we had a plot of yields of individual bonds against time to maturity, the crudest form of "yield curve." Years later, people began hand-drawing a smoothed line through these yields ...
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9 votes
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Determine the carry of a treasury bond futures contract?

Based on the your comments, I believe the issue lies with what you consider to be "carry." The reality is that there's no consensus. So let's take mini steps. We'll start with what rates guys ...
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8 votes

What is a central bank's shadow rate

It looks like it's referring to Wu and Xia (2016) shadow rates. Some more media coverage is here. The core idea of a shadow rate goes back at least to Fischer Black. Black (1995) Fischer Black's ...
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6 votes
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How to calculate US treasury total return from yield?

Let's start with a single bond. The total return from time $t_0$ to time $t_1$ can be easily calculated as follows: $$ R = \frac{\text{ending price} + \text{ending accrued interest} + \text{coupon ...
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6 votes
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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 ...
  • 9,656
6 votes
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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 ...
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5 votes

How to calculate US treasury total return from yield?

Assume you have the time series of 10-year Treasury constant-maturity yield $\{y_t\}$ from FRED (here), you can calculate the total return $R_t$ from $t$ to $t+\Delta t$ as following. Define $$ \text{...
5 votes
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Derive Perpetual Bond Price

A Consol Bond is a bond that pays an annual coupon of c every year. Therefore its price is $P=\frac{c}{1+r}+\frac{c}{(1+r)^2}+\cdots$. Factoring out the c and using the known formula for a geometric ...
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5 votes

Why is the duration of a bond important?

It is useful in risk reports because it tells a trader the interest rate risk of each bond in his portfolio. A trader then only needs to multiply the duration by the expected yield change to calculate ...
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5 votes
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Making mathematical sense of the expression for realized bond return

Let's go back to basics. In terms of its yield $y$, the price of a bond maturing in $n$ years is $$ P_n(y) = \sum_{i=1}^n\frac{c}{(1+y)^i} + \frac{100}{(1+y)^n} $$ One year later, the yield is now ...
  • 5,638
5 votes

Why is G spread bigger than Z spread theoretically?

Tough to answer specifically because I don't know what bonds you're looking at, but my guess is it has less to do with the spread-building blocks and more to do with the base curve. G spread is based ...
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5 votes
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How can a rise in real yields raise borrowing costs

Your formula is the definition of the running yield, which is a crude approximation. Let $P$ be the price of a zero-coupon bond paying 100 at maturity and $y$ its yield. Then it holds that $$ P = 100 \...
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5 votes

What is a central bank's shadow rate

The shadow rate is what the interest rate would be if money did not behave like an option. The concept was created by Fischer Black and his insight was that money acts like an option. Someone with a ...
5 votes

Excel YIELD function equivalent in python Quantlib

Your question is more or less answered in How to calculate bond yield in QuantLib - Python. Once you've built the fixed-rate bond object (as in the post you linked) you can call ...
5 votes

Yield curve trading

Please refer to the picture below for what each trade is betting on. As an example, in a bull flattening trade, you're betting that rates will decline AND the yield curve will flatten. The flattening ...
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5 votes
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Par Yield, Bond Yield and Zero Rate

Let's assume we have yearly cash flows, and let's focus on just two years - year 1 and year 2. Let $R_1$ and $R_2$ represent the zero rates of year 1 and year 2. So if you want to borrow for one year, ...
5 votes
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QuantLib returns slightly different bondYield when backtested

I would start by saying that yes, this is an acceptable precision. However, the reason you are not getting the same result is because, by default, QuantLib has ...
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5 votes
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Why is the treasury yield on Yahoo finance different from that on U.S. Department of Treasury?

It's actually written on the treasury page Negative Yields and Nominal Constant Maturity Treasury Series Rates (CMTs): At times, financial market conditions, in conjunction with extraordinary ...
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5 votes

What does the word "affine" mean in affine term structure models?

According to Monika Piazzesi: ...
  • 9,656
5 votes

How to compute par yield from zero rate curve?

For simplicity, let us assume continuously compounded zero rates and periodically compounded par yields. If you have to work with continuous rates, you may adapt the formulas accordingly. Using the ...
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5 votes

Hull's book par yield example

c is the coupon of the bond, so it is paid semiannually. You can see this from the LHS of the first equation, which is the sum of present values of the coupons and principal. The 6.87 and the 6.75 ...
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4 votes
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Pricing a bond contract from the yield curve

I think what you wrote is correct. I'll rephrase everything according to my way to give you another point of view. The price of a coupon bond at time $t = 0$ is the sum of the discounted cashflows ...
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4 votes

Conversion factor for bonds

First, the exact computation of conversion factor is actually quite tricky. The "6% yield" rule is really an approximation (although a very good one). CME provides a spreadsheet that you can use to ...
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4 votes

Floating-rate bond

While you may be able to arrive at some answer to this question empirically with a bit of research, theoretically I don't know if there is a formulaic/mathematical way to extract expectations of ...
4 votes
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What does the yield spread between an inflation linked treasury bond (TIPS) and a comparable treasury bond represent?

@AlexC has already provided the correct answer, but I thought I'd provide a bit more details. The breakeven inflation (still the mostly widely used practitioner terminology) is defined as follows: $$ ...
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4 votes
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How to compute the yield on the Ultra-Bond Treasury Futures

I think you have a little misunderstanding about treasury futures. I would get this book: http://www.amazon.com/Treasury-Bond-Basis-Depth-Arbitrageurs/dp/0071456104?ie=UTF8&psc=1&redirect=...
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4 votes
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Interest rate vs bond yield

The Federal Funds rate is an overnight rate. It may move differently from longer term rates such as the yield on 10yr notes. Possible reasons why 10yr yields might move down when the Fed raises the ...
  • 14.3k
4 votes

What are some of the best textbooks on Fixed Income securities?

The Fixed-Income bible is definitely this one: Damiano Brigo, Fabio Mercurio. Interest Rate Models - Theory and Practice It is a 1,007-pager covering a large range of topics including: Basic ...
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4 votes

Simulating a path of bond yields by Monte Carlo (Python)

I do not know Python but this is what I would do in Excel (I am assuming you are familiar with Excel and can then translate the steps into Python: Pick a time series of Bond Yields which has $n$ ...
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