20
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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10
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 ...
- 11.8k
10
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 ...
- 11.8k
9
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 ...
- 11.8k
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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8
votes
Fastest way to calculate YTM from bond price
I faced this problem trying to price bund yields from Bloomberg ticks. I found the fastest method was to price three static yields from three static prices and determine a quadratic function for those ...
- 11.2k
7
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 ...
- 7,035
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 ...
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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 ...
- 11.8k
6
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, ...
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6
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 ...
- 5,835
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
$$ \text{...
- 201
5
votes
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Making mathematical sense of the expression for realized bond return
Let's go back to basics. In terms of its yield $y$, the price of a bond maturing in $n$ years is
$$
P_n(y) = \sum_{i=1}^n\frac{c}{(1+y)^i} + \frac{100}{(1+y)^n}
$$
One year later, the yield is now ...
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5
votes
What is a central bank's shadow rate
The shadow rate is what the interest rate would be if money did not behave like an option.
The concept was created by Fischer Black and his insight was that money acts like an option. Someone with a ...
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5
votes
Why is G spread bigger than Z spread theoretically?
Tough to answer specifically because I don't know what bonds you're looking at, but my guess is it has less to do with the spread-building blocks and more to do with the base curve. G spread is based ...
- 151
5
votes
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How can a rise in real yields raise borrowing costs
Your formula is the definition of the running yield, which is a crude approximation.
Let $P$ be the price of a zero-coupon bond paying 100 at maturity and $y$ its yield. Then it holds that
$$
P = 100 \...
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5
votes
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
...
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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 ...
- 2,908
5
votes
What does the word "affine" mean in affine term structure models?
According to Monika Piazzesi:
...
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5
votes
Is there any source that describes Wall Street quotation conventions for fixed income securities (e.g. corporate bonds)?
There is no authoritative source. If you're dealing with vast quantities of diverse bond quotes, then it's very hard to interpet them correctly all the time, although you might get be right most of ...
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5
votes
Is there any source that describes Wall Street quotation conventions for fixed income securities (e.g. corporate bonds)?
To supplement @Dimitri's excellent answer, I recommend a little booklet called "Government Bond Outlines," published by JPMorgan's index team. This is easily obtainable from JPMorgan's ...
- 11.8k
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 ...
- 17.5k
5
votes
US swap spreads
The basic point you are making is correct. The main reason why swap spreads are negative is the large amount of Treasury issuance versus the limited capacity to own them. The scarcity of bank balance ...
- 17.5k
5
votes
Estimating the price of an illiquid 5y bond futures contract
That is not a lot of information and is certainly not enough to do this with sufficient accuracy for trading, but none-the-less we can do the exercise.
Information
I will assume that you also know ...
- 11.2k
4
votes
Accepted
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 ...
- 17.5k
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 $n$ ...
- 6,652
4
votes
What's the logic behind 3-10 UST yield inversion predicting recession?
When the market enters a risk-off period the investors proceed to a rotation between more risk assets (commodities, equities etc...) to the less risky ones. At this point there is just a lot of supply/...
- 2,197
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votes
Fastest way to calculate YTM from bond price
In my old pricing library I used NR to calculate YTM. That was the fastest that I could find.
But, "Alex C" is correct, you can pre-cache. Remember, BT quotes in 64's, so you can easily build up a ...
- 2,653
4
votes
Fastest way to calculate YTM from bond price
Brent's method may converge a little faster than NR for price-yield.
Before electronic computers, a "yield book" was a massive paper book where one could find nearest dirty price, days to ...
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