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The strike in these examples is the clean price. If a bond is called, then the bond holder receives the strike plus the accrued interest. It's exactly as if the bond hold sold the bond in the secondary market for clean price = strike. Bonds are frequently issued to be callable at par in the last few months of their lives for convenience: the issuer expects ...


5

The price of most (not all) bonds is quoted as a percentage of face value (par). For most amortizing bonds that have already amortized, the percentage is of the face value now, after amortizations, not the initial face value. (Bonds that are quoted / trading dirty / flat / on proceeds are different and I won't go there.) Suppose, for concreteness, than some ...


2

Bond valuation is often assumed to be dependent solely on the 'credit spread'. But the primary driver of securities prices is supply and demand, and this can materialise in many different ways. Let me give you a list and short description of factors that might create specific supply/demand factors over other bonds of potentially perceived identical credit. ...


3

Let me add that in my experience, floating-rate bonds are less liquid than fixed coupon bonds, particularly in emerging markets and also particularly for corporates. As user42108 pointed out, it might not be possible to borrow the floating rate bond (so that you cannot short the asset swap). Also, if the bid-ask spread on the floating rate bond is large (...


2

"it depends on whether you can "monetize the spread"" Presumably means whether you can trade the spread and make (or lose) money by doing so. It's possible there are "limits to arbitrage" - most likely no borrow - that prevent trading the spread. Really, the correct answer is to ask your senior...


1

To add some titles that haven't been mentioned: Interest Rate Swaps and Other Derivatives by Howard Corb. Excellent - and comprehensive - overview from a former rates salesperson at a bulge bracket bank Pricing and Trading Interest Rate Derivatives: A Practical Guide to Swaps by J Hamish M Darbyshire Fixed Income Relative Value Analysis, + Website: A ...


0

To complement Helin's excellent answer, there is a somewhat under-the-radar fixed income book that covers a broad swathe of material, contains a lot of concrete examples worked out in detail and, perhaps more importantly, includes a section on fixed-income portfolio management that is missing from most textbooks: Fixed-income securities: Valuation, Risk ...


1

If you're trying to get the jargon right, a "note" is up to 10 years maturity, and a U.S. Treasury "bond" is longer than 10 years. But it's OK, it's not wrong to call everything "bonds". You need to know the market conventions for US treasury securities. You have to know that if they're quoted on price, then it's clean price. ...


2

This should really be a comment to Dom's excellent answer (or to your question) but I don't have enough reputation to do so. For a textbook treatment that essentially covers the same points as Dom, see Chapters 1-3 of Fixed Income Securities by Tuckman et al (3rd edition). Somewhat unconventionally, the book starts by talking about Spot and Forward rates ...


3

Basically you are right to be skeptical about the use of the yield to maturity as a metric for comparing investments. It is useful, but imperfect, and it is important to understand its limitations. The simplest measure of bond return is the current yield $y_c = c/P$ which is the coupon divided by the price. If there was one coupon left, this might make sense....


2

To understand the distinction, it is useful to briefly review how Stripped MBSs (SMBSs) were created. We combine a number of pass-through pools to create a Mega pool which then (loosely speaking) issues an SMBS certificate with an IO and PO class. The crucial point here is that the IO and PO class can be combined and exchanged for the underlying pass-...


1

For most fixed-coupon bonds in most markets, the convention is that the daycount is only used to calculate the accrued coupon in the middle of the coupon period. If the complete coupon is paid at the end of the coupon period, then this is the quoted coupon. There are exceptions to this, for example, Mexico MBONOs are fixed coupon, but if the coupon date (...


2

Do you have an actual example of this ? In practice I don't think you'll find bonds that have day count conventions that give an accrual factor > 1. Most Treasury bonds across the world are quoted using 30/360 or Actual/Actual so the accrual factor is always less than or equal to 1. Conventions that give accrual factors > 1 are mostly confined to ...


3

Is formula (1) correct? Yes, follows from first definition - floater with deterministic spread is composed (sum) of two components: (1) pure floater and (2) deterministic coupon strip via contractual spread payment. Is formula (2) correct? Yes, by taking the derivative of an exponential function. what other case where duration of floating rate bond not ...


0

It depends upon what the security in question is because there are many different traded products in the MBS market. If we are restricting our attention to pools then the possibilities include single pools (as referenced by SolitonK), Mega/Giant/Platinum pools which are assembled by securitizing dozens and sometimes hundreds of individual pools, and TBAs ...


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