Investment Operations

Bond Math Bootcamp

Categories Introductory

Course Instructor

Course Level

Beginner

Certification

12.0 CPE Credits

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

Description

Date: TBD

The Bond Math Bootcamp virtual course is delivered via an interactive lecture format. It will provide an in-depth exposure to yield, pricing and interest rate conventions for fixed income securities. The session begins with an introduction to such fundamental concepts as time value of money, interest/discount rates as well as the compounding and day count conventions upon which market measures are based. The balance of the class will be devoted to exploring how these concepts are applied to the determination of price, yield, interest/discount rates, rates of return, accrued interest, etc. The presentation will incorporate the mechanics of the calculation: formula or methodology for determining a numeric value; source and nature of inputs into formula; implicit or explicit assumptions being used. This discussion of conventional calculations will be augmented by an introduction to the interpretation and application of the numbers – how market participants use the numbers for investment/market insights.

Who Should Attend

The seminar is useful for anyone whose duties entail some exposure to the fixed-income business. The program would be especially helpful to those working in areas supporting fixed-income trading or sales as well as middle- and back-office areas such as clearance and settlement, compliance, financial control, information technology, portfolio administration or marketing.

Agenda

Day 1 – Introduction to Bond Math

Fundamentals Concepts of Bond Mathematics

  • Interest rates, applications and interpretation
  • Interest rates, yields and rates of return compared
  • Interest conventions, simple versus compound, compounding frequencies
  • Time value of money (present and future values)

Fixed Income Market Pricing and Yield Conventions

  • Pricing discount money market securities (e.g., T-bills)
  • Pricing zero-coupon bonds
  • Pricing coupon bonds
  • Accrued interest and day count conventions

Bond Yields, Conventions, Calculation and Interpretation

  • Conventional yield measures: nominal and current
  • Interpretations of yield
  • Yield to maturity (YTM)
  • Yield to call (YTC), yield to worst
  • YTM versus rate of return
  • YTM reconsidered – bond price expressed as a discount rate

Day 2 – Yield Curve Analysis

Yield Curve Fundamentals

  • Terms and definitions
  • Homogeneity of bond characteristics other than maturity
  • Sector yield curves: government, corporate, municipal, etc.
  • Components of Treasury security and corporate bond yields
  • Types of curves: current coupon, par bond, spot rate, forward rate, etc.
  • Other variations: total return curves, duration vs yield

Yield Curves, Construction and Analytic Application

  • Current coupon curve (e.g., on-the-run US Treasury curve)
  • Spot rate curves, bootstrapping curve, valuing coupon bond as a portfolio of zeros
  • Spot rate curve vs (Treasury) strip rate curve
  • Forward rate curves: curves of forward rates vs forward yield curves

Types of Spreads: Definitions, Calculation and Applications

  • G-spread: spread to government bond yield
  • I-spread: spread to par interest rate swap rate
  • Z(zero volatility)-spread
  • Option-adjusted spread (OAS)

Yield Curves Applications in Economic Analysis and Sector Valuation

  • Treasury yield curve and the business cycle
  • Yield curve spreads vs Treasuries and business cycles
  • Spreads as measures of relative value (richness or cheapness) of sectors

Day 3 – Duration and Convexity

Introduction to Bond Duration

  • Macaulay duration as a measure of a bond’s life (longness)
  • Rediscovery of duration and initial applications (bond/portfolio immunization)

Duration and Convexity of Bonds with No Embedded Options

  • Duration as a measure of bond price sensitivity: modified and effective duration
  • Estimating bond price change given a change in yields
  • Convexity: duration’s sensitivity to yield changes
  • Estimating a bond’s price change using its duration and convexity

Duration-Based Hedging and Risk Management Strategies

  • Hedging Treasury securities with Treasury futures
  • Hedging corporates and mortgage-backed securities (MBS) with Treasury futures
  • Bond portfolio duration
  • Bond index fund applications of portfolio duration
  • Active bond fund applications of duration

Duration and Convexity of Bonds with Embedded Options

  • Complications related to embedded options: uncertain life/cash flows
  • Calculating effective duration and convexity: shifting binomil interest rate trees
  • Effect of call (negative convexity) and put (even more positive convexity) options
  • Uses of key rate and one-way duration for callable and putable bonds
  • Evaluation of negative convexity on callable corporate bonds and MBS

Summary & Questions

$1,495.00

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

Course Instructor

Course Level

Beginner

Certification

12.0 CPE Credits

Delivery

Via Zoom

Hours (EST)

9:00 am - 1:00 pm​

$1,495.00

Description

Date: TBD

The Bond Math Bootcamp virtual course is delivered via an interactive lecture format. It will provide an in-depth exposure to yield, pricing and interest rate conventions for fixed income securities. The session begins with an introduction to such fundamental concepts as time value of money, interest/discount rates as well as the compounding and day count conventions upon which market measures are based. The balance of the class will be devoted to exploring how these concepts are applied to the determination of price, yield, interest/discount rates, rates of return, accrued interest, etc. The presentation will incorporate the mechanics of the calculation: formula or methodology for determining a numeric value; source and nature of inputs into formula; implicit or explicit assumptions being used. This discussion of conventional calculations will be augmented by an introduction to the interpretation and application of the numbers – how market participants use the numbers for investment/market insights.

Who Should Attend

The seminar is useful for anyone whose duties entail some exposure to the fixed-income business. The program would be especially helpful to those working in areas supporting fixed-income trading or sales as well as middle- and back-office areas such as clearance and settlement, compliance, financial control, information technology, portfolio administration or marketing.

Agenda

Day 1 – Introduction to Bond Math

Fundamentals Concepts of Bond Mathematics

  • Interest rates, applications and interpretation
  • Interest rates, yields and rates of return compared
  • Interest conventions, simple versus compound, compounding frequencies
  • Time value of money (present and future values)

Fixed Income Market Pricing and Yield Conventions

  • Pricing discount money market securities (e.g., T-bills)
  • Pricing zero-coupon bonds
  • Pricing coupon bonds
  • Accrued interest and day count conventions

Bond Yields, Conventions, Calculation and Interpretation

  • Conventional yield measures: nominal and current
  • Interpretations of yield
  • Yield to maturity (YTM)
  • Yield to call (YTC), yield to worst
  • YTM versus rate of return
  • YTM reconsidered – bond price expressed as a discount rate

Day 2 – Yield Curve Analysis

Yield Curve Fundamentals

  • Terms and definitions
  • Homogeneity of bond characteristics other than maturity
  • Sector yield curves: government, corporate, municipal, etc.
  • Components of Treasury security and corporate bond yields
  • Types of curves: current coupon, par bond, spot rate, forward rate, etc.
  • Other variations: total return curves, duration vs yield

Yield Curves, Construction and Analytic Application

  • Current coupon curve (e.g., on-the-run US Treasury curve)
  • Spot rate curves, bootstrapping curve, valuing coupon bond as a portfolio of zeros
  • Spot rate curve vs (Treasury) strip rate curve
  • Forward rate curves: curves of forward rates vs forward yield curves

Types of Spreads: Definitions, Calculation and Applications

  • G-spread: spread to government bond yield
  • I-spread: spread to par interest rate swap rate
  • Z(zero volatility)-spread
  • Option-adjusted spread (OAS)

Yield Curves Applications in Economic Analysis and Sector Valuation

  • Treasury yield curve and the business cycle
  • Yield curve spreads vs Treasuries and business cycles
  • Spreads as measures of relative value (richness or cheapness) of sectors

Day 3 – Duration and Convexity

Introduction to Bond Duration

  • Macaulay duration as a measure of a bond’s life (longness)
  • Rediscovery of duration and initial applications (bond/portfolio immunization)

Duration and Convexity of Bonds with No Embedded Options

  • Duration as a measure of bond price sensitivity: modified and effective duration
  • Estimating bond price change given a change in yields
  • Convexity: duration’s sensitivity to yield changes
  • Estimating a bond’s price change using its duration and convexity

Duration-Based Hedging and Risk Management Strategies

  • Hedging Treasury securities with Treasury futures
  • Hedging corporates and mortgage-backed securities (MBS) with Treasury futures
  • Bond portfolio duration
  • Bond index fund applications of portfolio duration
  • Active bond fund applications of duration

Duration and Convexity of Bonds with Embedded Options

  • Complications related to embedded options: uncertain life/cash flows
  • Calculating effective duration and convexity: shifting binomil interest rate trees
  • Effect of call (negative convexity) and put (even more positive convexity) options
  • Uses of key rate and one-way duration for callable and putable bonds
  • Evaluation of negative convexity on callable corporate bonds and MBS

Summary & Questions

In-House Training

Custom Training can help you achieve your corporate training goals while staying on budget and focusing the content on the needs of your group. Email your questions regarding corporate training to training@investmentoperations.net.

2024 Training Calendar

Training Catalogue

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