The course is intended for professionals seeking to enhance their skills and market knowledge in today's challenging fixed income environment.
Bond School is a 4-day intermediate training program on the key structures and applications of bonds and fixed income instruments
• Gain an overview of bond & fixed income markets and the current trends in global issuance
• Determine a methodology to structure, price and position bond and fixed income instruments to maximize investment, financing and risk management activities
• Develop an understanding of the syndicated loan process and how to create facilities to match client needs
• Examine how bond & fixed income instruments are rated and the implications of the rating
• Analyze yield curves and the implications for future interest rate movements
• Understand the differences between yield and return conventions in the fixed income market
• Calculate and use duration and convexity to measure risk and actively manage fixed income portfolios
• Customize complex interest rate swaps to meet client objectives
• Structure and price equity linked securities, structured debt products and other complex fixed income derivatives
• Construct interest rate caps and collars to manage financial risk
• Define and analyze financing and arbitrage vehicles
• Determine the impact of a securitization transaction on a company's performance measurements tools
Course summaryThis comprehensive course covers the following:
· Treasury and Agency securities
· Overview of Corporate Debt Instruments
· The Syndicated Loan Market
· The Ratings Agency Process
· Bond Prices & Yields
· Understanding Yield Curves
· Bond Price Sensitivity
· Forward Rate Agreements
· Interest Rate Swaps
· Transaction Aspects of Swaps
· Interest Rate Futures
· Fixed Income Options
· Equity-Linked Securities
· Customizing Interest Rate Swaps – Beyond "Plain Vanilla"
· Structured Debt Products
· The Securitization Process
· The Asset-Backed Securities Market
Teaching MethodsThe program will combine lectures with hands-on practical exercises as well as computer simulation exercises to apply the topics presented and interpret the results. The program focuses on practical implementation issues necessary to establish a sound understanding of how to bond and fixed income instruments.
Assumed KnowledgeThis intermediate level course assumes participants possess a basic knowledge of finance and derivative products. Knowledge of basic financial mathematics and excel skills are also suggested.
Day 1 The Fixed Income Marketplace
Introduction to Fixed Income Markets
• Overview of bond markets
• Current trends in global issuance
• Market participants and their roles
Treasury and Agency Securities
• Types of government securities
• Primary and secondary markets
• Federal agency securities and GSEs
• Repurchase agreements
Overview of Corporate Debt Instruments
Short and medium term instruments including:
• Commercial paper
• Medium-term notes
• Primary and secondary markets
• Investment grade and high yield bonds
• Private placements and Rule 144A Securities
• Coupon and principal variations
The Syndicated Loan Market
• The syndicated loan process
• Types of loans and credit facilities
• Creating facilities to match client needs
Case Study: Recent Debt Market Transactions
Participants will examine corporate and market conditions prior to issuance of several recent capital markets issuances. Groups will be asked to predict the actual issuance type, size and approximate pricing based on the background information provided.
The Ratings Agency Process
• Review of the concept
• Examine distinctions between agency ratings
• Discuss the bond rating process
• Review the ratios and formulas
• Analyze the standard financial adjustments
• Examine the effect of bond ratings on credit spreads
• Consider the implications of implied ratings
Exercise: Bond Rating Analysis
Participants will be given public information on a subject company and S&P ratio statistics. Participants will be given the initial bond rating for a given company and then asked to calculate how much debt needs to be added to change the rating by one, and then two, notches.
Day 2Pricing & Valuing Fixed Income Instruments
Bond Prices & Yields
• Time Value of Money Fundamentals
• Bond Pricing Using Zero-Coupon Yields
• The Assumption of “No Arbitrage” in Modern Financial Theory
• Yields to Maturity and Internal Rates of Return
• Compounding Conversions
• Total Return (Horizon Yield) Analysis
Exercise: Comparing Yields on Fixed-Income Bonds: Delegates will complete a series of exercise to understand the differences between the various yield and return conventions in the fixed income market.
Understanding Yield Curves
• Historical Patterns To Observed Yield Curves
• Boot-Strapping Implied Zero-Coupon Rates
• Calculating and Using Implied Forward Sates
• Expectations Theory Versus Segmented Markets Theory: Is a Forward Rate a
Reasonable Forecast of Future Rates?
Case Study: Yield Curve Analysis
Participants are given government and swap yield curves from four currencies: Euro,
US Dollar, Yen and Sterling. Groups will discuss implications and answer the
following:
• What do the yield curves tell us about current financing and investment conditions?
• What implications do the yield curves have for future interest rate movements?
• What capital markets possibilities do market conditions present for clients?
Bond Price Sensitivity
• Bond Price Sensitivity To Passage of Time and Changes in Yields
• Calculation of Macaulay, Modified, and Effective Duration Statistics
• Calculation of Effective Convexity
• Using Duration and Convexity to Measure Risk
• Using Duration and Convexity as Summary Statistics for Active Management of
Fixed Income Portfolios: Parallel Yield Curve Shifts, “Steepeners”, “Flatteners”,
and “Butterfly” Shifts
Exercise: Using Duration & Convexity Participants are given a group of bonds and will calculate duration and convexity given various scenarios.
Day 3Fixed Income Derivatives
Forward Rate Agreements
• Deriving the forward curve
• Pricing and settling
• FRAs as a building block to interest rate swaps
Interest Rate Swaps
• Analytical pricing framework
• Amortizing and forward swaps
• Applications of advanced swap structures
Case Study: CART Driving 101: FRAs and IRS
Participants will complete a series of exercises and discussion questions involving forward rate agreements and interest rate swaps.
Transaction Aspects of Swaps
• Using mark-to-market to manage settlement risk
• Swap agreements: assignments, offsetting, unwinding
• Gauging potential exposure
Interest Rate Futures
• Treasury bill and treasury bond futures
• Eurodollar markets
• IRS futures
• Yield curve strategies
• Spread trading
Fixed Income Options
• Interest rate caps, floors and collars
• Terminology and conventions
• Participating structures
• Examples
Case Study – Mike’s Cigars: Using Interest Rate Options
A client is looking for advice on how to hedge an upcoming interest rate reset date. Each team will construct interest rate caps and collars to help Mike’s manage its financial risk.
Equity-Linked Securities
• Overview of the market
• Issuance characteristics
• Pricing convertible debt
• Deal examples
Case Study: Orange, plc Participants will examine an exchangeable bond, examining:
• Pricing considerations
• Target investors
• Marketing role
• Possible arbitrage opportunities
Day 4
Advanced Swaps, Structured & Securitized Product
Customizing Interest Rate Swaps – Beyond “Plain Vanilla”
• Analytical pricing framework
• Amortizing and forward swaps
• Applications of advanced swap structures
Case Study: Advanced Swaps
Participants will perform a series of exercises exemplifying the usage of complex interest rate swaps to meet client objectives.
Structured Debt Products
• Structured notes
• Floating rate notes (FRNs)
• Reverse floaters
• Equity-linked product
• Basket-type structures
Case Study: Examining FI Structured Product
We will explore a recent fixed income derivative transaction.
The Securitization Process
• Cost-of-capital implications
• Bankruptcy-remote SPVs
• Credit enhancement methodologies and issues
• New structures and issues
The Asset-Backed Securities (ABS) Market Define and discuss various financing and arbitrage vehicles, including:
• Mortgage-backed securities (MBS) and commercial mortgage-backed securities
(CMBS)
• Credit card receivables
• Automobile securities (CARs)
• Asset-backed commercial paper (ABCP) conduits
• Collateralized debt obligations (CDOs)
Case Study: Volkswagen AG
Participants will determine the impact of a securitization transaction on a company’s performance measurements tools.
Course Review & Conclusion
• Summary of the Fixed Income universe
• Recent trends and future possibilities