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4

I'll use a real life example back from the early 2000s, since the specialness effect was much more pronounced. Back on Feb 14, 2001, the 10-year on-the-run note (5s of Feb 15, 2011) traded at a yield of 5.121% / price of 99.062. We assume that the bond will lose its specialness in three months, so we reference the 3-month forward market for clues. On this ...


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The definition depends whether or not you're discussing bond/swap trading or macroeconomics. For bonds and swaps, the "notional" or "nominal" values are the same thing. In macroeconomics however "nominal" rates are the stated interest rates before deducting the rate of inflation. (As opposed to the "real" interest rates which are inflation-adjusted) I ...


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Lots of questions here. The reason why there was a liquidity squeeze in H1 2018 was most probably due to the large issuance of Treasury Bills, as the US Treasury replenished its cash balances following the reduction thereof during the debt ceiling debate of late 2017. This "liquidity squeeze" manifested itself in increased Libor-Fed Funds spreads, as ...


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The reality is that fitted curves can vary significant from one firm to the next. The chart below shows the fitted par curves as of June 19, 2018, using two very different models. The differences are quite stark: Even if two firms adopt the same model, they can still end up with vastly different curves (and therefore curve spreads), because curve fitting is ...


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The duration represents the sensitivity of the price of a financial instrument to current interest rates. Since at the rolling date the price will be equal to the face value no matter what happens to interest rates today (the interest rate will be reset at a future date), the rolling does not add any price sensitivity to an instantaneous interest rate shock. ...


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You apply the fixed effects regression (https://en.wikipedia.org/wiki/Fixed_effects_model) model with industry specific individual effects. Essentially add industry specific constant terms (/dummies) to a regression model. In the context of a cross-sectional asset pricing regression this intuitively captures the mean return of all stocks in the same industry....


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The traditional risk factor decomposition of a general MBS includes the following risk factors: Prepayment Risk, Interest-rate Risk (Realized Volatility), Basis Risk, Volatility Risk (Implied volatility), Financing/Leverage Risk, Liquidity Risk and Credit Risk. If the focus is on Agency MBS Pass-throughs then one usually assumes that Liquidity and Credit ...


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Linear interpolation of the discount factors is not a good idea. A better idea, in the absence of a full analysis, is to linearly interpolate the logarithm of the discount factors. You can use the 6M IBOR rate and other yearly tenor IRSs (versus 6M IBOR) to roughly bootstrap the 6M forecast curve. What linearly interpolating the logarithm of the discount ...


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"Primary calendar" in this context most likely means the schedule of emissions on the primary market. If the primary calendar is strong, there are lots of emissions both in number and size.


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There are many considerations when fitting a curve that will add to variability across analysers; Weights of bonds, Knot points, Smoothing constraints, Other complex constraints like minimising curvature over time. Minimising function used for residuals, Etc. I don't profess to know which is best, different analyses are better served by different ones I ...


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That's a reasonable question. I would say most of the time, participants will agree which bonds look 'cheap' and which look 'expensive'. This is because usually the forces of supply and demand have caused the dislocation. Typically , a certain bond or bonds have been in demand for some reason, so they become expensive. These dislocations can persist , ...


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