School Of Bonds & Fixed Income

An essential training course for all bond and fixed income professionals. Developed over time to become the programme of choice for anyone looking to enhance their practical knowledge of bonds and fixed income trading.

Course Highlights

It was an effective and complete presentation regarding all the main topics in relation to bonds, within a small group which allowed room for personal attention. I also enjoyed the company of the other participants by having a good time as well

G.R.,Interstrust SA

What you will learn by attending this programme:

Master practical bonds pricing techniques
Get to grips with bond mathematics
Understand bond sensitivities to ensure effective investment and trading decisions
Learn how futures, options and swaps can be used as hedging and trading technique in the bond market
Get to grips with repos and reverses and learn how to price them
Learn how to use strips to exploit arbitrage opportunities
Use the term structure of interest rates to effectively price bonds and swaps
Discover new insights into liability swaps, asset swaps and their relationship to the bond markets
Understand the debt origination process

For details of the course trainer, please download the course brochure

Booking Information

Dates	Prices	Book This Course	Discount
04 - 08 Oct 2010	£ 4999		-
07 - 11 Mar 2011	£ 4999		-

Course Programme

G.R.,Interstrust SA

This is the best course I've been to so far --- Very practical approach, many case studies that showed how the knowledge can be applied in daily life. In the end I got more out of the course than I thought I would.

M.W., Wiener Börse

Great teachers and handsout. Very nice treatment by IFF

A.T., Israel Discount Bank

DAY 1

Day one of the programme will be centred on an intensive guide/refresher on the mechanics of bond and fixed income products. After getting to grips with the fundamentals, the learning curve gradually becomes steeper as we cover more complex issues.

OVERVIEW OF CAPITAL MARKETS

Bonds and Fixed Income Mechanics

Time Value of Money

the mathematics for capital markets
the mathematics for money markets

Getting to Grips with Algebra

basic transformations

Basic Bond Mathematics

3 applications widely used in the markets
calculating future values
calculating present values
calculating implied financing rates
the basic assumptions and their implications for bond pricing
using financial calculators (HP12Cs, HP17BII's and HP19BII's, Casio FC-100, TI BAIIPlus)
annual, semi-annual and quarterly rates

Market Conventions and Conversions

Conventions

ISMA Bond Basis (30E/360 and Actual/Actual)
US Bond Basis (30/360)
US Money Market Basis (Actual/360)
UK Money Market Basis (Actual/365F)
UK Money Market Basis Variation (Actual/365)
US Treasury Basis (Actual/Actual)

Conversions

converting from 360 to 365 and vice versa
converting from 30/360 to Actual/360 and vice versa

Pricing principles

Approximate NPV of a trade
Precise NPV of a trade
Intrinsic values, in-, out- and at-the-money
Identifying winners and losers
Brearley and Myers and The Principles of Corporate Finance

Practical Bond Pricing Techniques

What moves interest rates
What influences yield curves
A macro approach to pricing fixed rate bonds
The value of one basis point for different maturities
Inverse proportionality

Exercise: Approximating bond prices mentally

The use of benchmarks in bond pricing
Using a single discount rate
Assumptions inherent in interest compounding
Calculating and interpreting internal rates of return
All-in-costs and yields to maturity
ISMA's rules 803.1 and 803.2
Accrued interest
Clean and dirty prices
Multiple discount rates
Forward rates and zero curves
Zero coupon bonds
High yield bonds

The bond markets today

Impact of the credit crisis
Origination
Trading
Sales
Investor perceptions
Regulatory considerations

Case study: Pricing a recent bond issue

Case Study: Calculating clean and dirty bond prices

Group Exercise: Trading the yield curve (1) – curve steepeners and curve flatteners

DAY 2

Day two sees the programme initially continuing with the practical pricing theme from the previous day while making links between the pricing of fixed rate bonds and floating rate notes. The programme will then move into some of the more specialist instruments. The second half of the day will focus on the understanding of bond sensitivities.

Pricing Floating Rate Notes

Parallels with fixed rate bonds
Discount margins, IRRs and YTM
Changes in the market
Changes in the credit
Exercise: approximating floater prices mentally
Using Bloomberg to price floaters
Using a single discount rate
Using multiple discount rates
Forward rates and zero curves
The relationship between swaps and floaters
High yield floaters

Case Study: Calculating clean and dirty floater prices

Understanding Bond Sensitivities

The importance of Risk Management
Bond Pricing Review
Macauley Duration

capital loss and income gain from interest rate movements
break-even analysis
time-weighted average of discounted cashflows
sensitivity of duration for different bonds
maturity
coupon
yield

Time decay of Duration
Modified Duration

price-yield relationship
approximation of price changes

Convexity

estimating convexity
measuring convexity
dynamic hedging

Group Exercise: Trading the yield curve (2) – duration weighted curve steepeners and curve flatteners

DAY 3

Day three begins by considering the practical uses and applications of duration including bond portfolio management, hedging and duration-based trades as well as examining the use of repos and reverses in the bond markets. The second half of the day will start with an overview of the vital capital adequacy requirement for banks and then will provide a detailed practical guide to swaps linking them to futures, options and other derivatives.

Using Duration as a Hedging or Trading Technique

Risk and interest rate sensitivity
Calculating the present value of one basis point

Exercise: calculating the PV01 of a bond position

Using Macaulay's duration
Using Modified duration
The relationship between duration and the PV01
The additivity of duration

Case Study: Using duration to calculate hedge ratios; Curve trading

Bond Portfolio Management

Using duration as a portfolio management tool
Managing interest rate risk
Lengthening and shortening portfolio duration
Asset and liability matching

Getting to Grips with Repos and Reverses

Types of repos and reverses
Classic
Buy/sell-back
Securities lending
Economic similarities to FX swaps

Exercise: Calculating repo prices

General collateral
Specific repo
Specials
Tri-party repo

Case Study: The uses of repos and reverses

Introduction to Interest Rate Derivatives

Capital Adequacy Requirements

Basle 1 and 2
The Balance sheet approach to Risk
Capital adequacy requirement
Risk weights
Market risk
Off -balance sheet instruments and interest rate derivatives
The corrective measures
Credit risk

Interest Rate and Currency Swaps

The Swap Mechanism
The Uses of Swaps and other Derivatives

Speculation
Hedging and Asset & Liability Management
Market Making
Risk Management
Arbitrage
Debt origination
Asset swaps

Interest Rate Risk Management with Swaps compared to other Interest Rate Derivatives
Swaps and Futures

Swaps and FRA's
Swaps and Caps, Floors, and Collars

DAY 4

Day four sees the course moving into other essential areas in the bonds and fixed income field, beginning with strips and asset backed securities the course will then move on to provide in-depth coverage of yield curves and swaps. During the case study in the afternoon we will go through debt origination and pricing bond including all the issuance fees. The importance of swaps in the issuing procedure will be finally highlighted. We will rap up the session with an overview on Asset-Backed Securities.

Use Strips as a Benchmark for Pricing non-standard Bonds

Pricing Bonds revisted
TIGRs, CATS, LIONs, GATORS, COUGARS, DOGS, TRS STRIPS
Stripping and reconstituting bonds
Pricing examples

Term Structure of Interest Rates

The Yield Curve
The Par Curve
The Zero Curve
Bootstrapping
Calculating the zero rates
The forward curve
Three approaches for calculating the implied forward rates
Creating a Term Structure of Interest Rate
The importance of par rates

Case Study: Working out the term structure of Interest Rates

Selecting the yield curve
Bootstrapping
Building a zero-coupon curve
Implying the forward rates
Sumarising the forward rates

Case Study: Debt Origination

Issuing Bonds under Fixed Price Re-offer
Syndication
Setting the Re-offer Spread
Finding the Re-offer Yield
Issue Price
All-in-costs to Borrower
Spread over Treasuries
Adding the Swap and reaching sub-libor funding

Liability Swaps and the Bond Markets

Debt origination
Fixed Rate Bonds versus Floating Rate Notes
Arbitrage possibilities
The benefit of Swaps
The Swap window of opportunity
Sub-libor funding for prime borrowers

Asset-Backed Securities

Collateralised Mortgage Obligations (CMO)
Receivables (CARD's), (CAR's) etc
Credit-linked Notes (CLN)
Asset-backed Commercial Paper (ABCP)

DAY 5

The final day of the programme is also one of the most intensive. Starting with the uses and applications of asset swaps, you will master the complexities of swap pricing and valuation. This day also includes comprehensive case study covering the pricing of Asset Swaps before we summarise the entire programme.

Asset Swaps and Bond Markets

The drivers of the asset swap market
The different Asset Swap Structures

Swap Pricing

The cash flow
Determining the value of the variable cash flow
The Swap pricing condition
Determining the rate of the fixed cash flow

Swap Valuation

Valuation of the Floating Rate Leg
Valuation of the Fixed Rate Leg
Determining the Net Present Value

Credit Curves and Benchmarking

The Swap rate as key part of the term structure of interest rates
How it all fits together
Benchmarking over Government Bonds
Benchmarking over Swaps and CDS
Benchmarking over Libor

Case Study: Asset Swap Pricing and Valuation

Pricing an Asset Swap for Par Bonds
Pricing an Asset Swap for Premium Bonds
Pricing an Asset Swap for Discounted Bonds

Summary / Review

"A swap is not a swap"