Workshop on Fundamentals of Fixed Income

Program Overview:

The focus of this course is fixed income securities which are used by governments and corporate organizations to raise finance. Features of these instruments are studied along with pricing principles. The course is practical in nature and uses examples of securities from the markets throughout. Participants will work in Excel to construct pricing models. Risk from fixed income transactions is studied along with an overview of yield curve transactions.

For Whom:

This program is designed for those with basic knowledge of fixed income and wishes to upgrade their knowledge to a more technical level. This role is particularly suited to delegates working in, or with, risk departments, product control, fixed income sales, fixed income trading, and product development and technology business analysts.

Learning Objectives:

At the end of the program, Participants will be able to:

*              discuss risks from fixed income securities;

*              explain the features of money market and bond instruments;

*              calculate the cash flow from a bond;

*              illustrate the principles of bond pricing; and

*              define yield curves.

Course outline:

 Day 1:  Bond Markets

• Bond markets are the benchmarks of the fixed markets.
• Features of government bonds:
• Major issuers of bonds, investors in bonds, coupon variations, credit considerations, maturities
• Features of corporate bonds:
• Types of corporate bond, credit ratings, credit spreads
• Case study: Investors and bonds:
• Selecting the most appropriate bond for a series of investors with different risk profiles

Day 2: Bond Pricing Fundamentals

• Time value of money
• Case study: Present value and future value
• Cash flow from a bond
• Price/yield relationship
• Yield variations
• Case study:
• Bond pricing – calculating price and calculating yield

  3: Practical Bond Pricing

• Modeling cash flow from a bond

• Accrued interest
• Clean and dirty pricing
• Discount factors

Day 4: Bond Risk Metrics

• Duration
• Modified Duration
• Dollar Duration, DV01, PVBP, PV01
• Hedge ratios
• Excel exercise:
• Building risk metrics in Excel – completing
• The modeling of the bonds using Bloomberg risk data

Day 5: Language of Yield Curves

• Flattening
• Steepening
• Inverted curves
• What does the yield curve tell us?
• Overview of yield curve transactions

Training Methodology

Lectures, discussions, exercises, and case studies will be used to reinforce these teaching/learning methods.