A Masterclass in Bonds & Fixed Income

IFF Training

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IFF Training


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About the course

The course covers the drivers of the bond markets: not just the market maths - although this is covered in full - but also the forces that sustain the markets. You will explore the roles of origination, syndication, trading and sales. You’ll look at the interplay between the buy side and the sell side, and the relationship between the bond and the swap markets and the drivers of the structured products market. You’ll learn how to trade the yield curve and how to hedge portfolios with swaps and futures.

Return to work able to:

  • price fixed rate bonds at a glance - without using a calculator
  • price fixed rate bonds on your phone and in Excel
  • understand the relationship between fixed rate bonds and floating rate notes
  • determine whether bonds are cheap or expensive
  • use asset swaps as a pricing tool for credit risk

You’ll get a complete picture of the mechanics of the fixed income markets and will feel confident participating in technical market discussions with your colleagues and your clients.

Learn how to

  • Price fixed rate bonds at a glance - without using a calculator
  • Price fixed rate bonds on your phone and in Excel
  • Understand the relationship between fixed rate bonds and floating rate notes
  • Determine whether bonds are cheap or expensive
  • Use asset swaps as a pricing tool for credit risk

Case studies and practical sessions

Some of the featured deals will be less than 24 hours old when you see them, emphasising how the markets work today. Practical sessions include:

  • Estimating the difference between semi-annual and annual rates at a glance
  • Benchmarking corporate bonds to an interpolated curve
  • Dynamically hedging a portfolio
  • Using duration to calculate hedge ratios; curve trading
  • Bond pricing in Excel
  • Working out the term structure of interest rates
  • Asset swap pricing and valuation


Day 1

How the Bond Markets Work

  • Differentiating bonds and loans
  • Standard clauses: pari passu provisions, negative pledges and cross default clauses
  • Mark to market and accrual accounting
  • How bond pricing works

Case Study

You will examine a new international bond issue from the perspectives of the issuer, the arrangers and investors

Pricing Principles

  • Approximate and precise NPVs of trades
  • The role of the bid/offer spread
  • Intrinsic values, in-, out- and at-the-money prices
  • Identifying the winner and the loser in a trade: symmetrical risk and asymmetrical risk products
  • Day count conventions, accrued interest, clean and dirty prices
  • Brealey & Myers: the things we know and don’t know about finance

Exercise - Estimating bond prices

Bonds and Fixed Income Mechanics

  • Discounted cash flow
  • Money market maths and capital markets maths
  • Market conventions
  • Calculating present and future values
  • Implied repo rates and the cheapest-to-deliver bond
  • Yield curve assumptions and their implications for bond pricing
  • Calculating bond prices and yields in excel
  • Annual, semi-annual and quarterly rates
  • Market conventions and conversions

Exercise - Estimating the difference between semi-annual and annual rates at a glance

Case Study - Archer Daniel Midland Company 6.75% December 2027

Case Study - Benchmarking corporate bonds to an interpolated curve

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: PV01s and DV01s
  • Inverse proportionality: prices and yields

Exercise - Haliburton 6.875% January 2028 (Excel)

Yield Curves

  • Discounting with a single discount rate
  • Assumptions inherent in interest compounding
  • Calculating and interpreting internal rates of return
  • All-in-costs and yields to maturity
  • ICMAs rules 803.1 and 803.2
  • Multiple discount rates
  • Forward/forward rates and zero coupon curves
  • Market expectations
  • Liquidity preferences
  • Market segmentation

Exercise - Straight line interpolations of the US Treasury curve

The Use of Benchmarks in Bond Pricing

  • Relative prices
  • Government benchmarks
  • Libor benchmarks
  • Alternative reference rates
  • Mid-swaps
  • Sector benchmarks

Case Study - Benchmarking Apple and Verizon

Investment Skills

  • Margins of safety
  • The four most dangerous words in finance
  • The role of patience
  • The importance of contrariness
  • Risk and the permanent loss of capital
  • Leverage
  • Understanding the detail of investment opportunities

Exercise - Seven immutable laws of investing & nine rules of risk management

An Introduction to Curve Trading

  • How traders exploit changes in the shape of the yield curve
  • How traders establish strategic curve trades
  • Curve steepening trades
  • Curve flattening trades
  • Factors that influence the P&L of strategic curve trades
  • Advanced strategic curve trades

Exercise - Curve flattening trades and curve steepening trades

Case Study - Pricing a corporate bond

  • The price and the yield of fixed rate bonds
  • Liquidity risk
  • Credit risk
  • The spread to governments
  • The spread to the interpolated swap curve
  • The asset swap spread
  • The Z-spread
  • The option adjusted spread

Day 2

The Bond Markets Today

  • An update on bond market liquidity
  • The new issue market: global investment grade bonds
  • The new issue market: high yield and emerging market bonds
  • Basel III, the Dodd-Frank Act and the Volcker Rule
  • Electronic trading: an updat

Case Study - Republic of Turkey 4.875% October 2026

Pricing Floating Rate Notes

  • Parallels with fixed rate bonds
  • Discount margins, IRRs and yields to maturity
  • Changes in the market
  • Changes in the credit
  • 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 - FRN pricing - Pernod Ricard

Bond Portfolio Management

  • Measuring the risk in a portfolio
  • Gauging the hedge
  • Interest rate risk management principles
  • Adjusting portfolio duration
  • Asset and liability management

Case Study - Dynamically hedging a portfolio

Getting to Grips with Repos and Reverses

  • Mechanics of repos and reverses
  • Classic, buy/sell-back, securities lending
  • Parallels with FX swaps
  • General collateral, specific repo, specials
  • Current market developments in tri-party repo

Case Study - The repo market

Contingent Convertible Capital Instruments

  • Structure and design of CoCos
  • Triggers and loss absorption mechanisms
  • CoCo issuance and investors in CoCos
  • Factors influencing the size of the CoCo investor base
  • Primary market pricing and secondary market trading of CoCos

Case Study - Understanding the CoCo market

Case Study - How Global Investors Turn Negative Japan Yields Into Big Returns

  • Record-low negative yields
  • Discount offered to dollar holders to borrow yen
  • Fixed coupon equivalent for owning five-year JGBs
  • Foreign demand for Japan’s two- and five-year bonds
  • Cross-currency basis swaps
  • Demand for dollars

Day 3

Using Duration as a Hedging or Trading Technique

  • Risk and interest rate sensitivity
  • Calculating the present value of one basis point
  • Using macaulay’s duration
  • Using modified duration
  • The relationship between duration and the PV01
  • The additivity of duration

Exercise - Using duration to calculate hedge ratios; curve trading

Managing Interest Rate Risk

  • The importance of risk management
  • Measuring interest rate risk: subjective and objective risk measures
  • Fixed and floating rate interest rate risk
  • Delta and the first derivative
  • Gamma and the second derivative
  • Macaulay duration and modified duration
  • Interest rate movements: capital losses and income gains
  • Break-even analysis and time-weighted average of discounted cashflows
  • Sensitivity of duration for different bonds to maturity, coupon and yield
  • Time decay of duration
  • Price-yield relationship and approximation of price changes
  • Convexity, gamma and the second derivative
  • Estimating convexity and measuring convexity
  • Static and dynamic hedging

Exercise - Using duration as a hedging tool

Case Study - Bond pricing in Excel

Interest Rate Derivatives

  • Basel Regulation
  • The balance sheet
  • Capital adequacy requirement
  • The Basel accord, Basel II and Basel III
  • Off -balance sheet instruments and interest rate derivatives
  • Credit risk
  • Market risk
  • Liquidity ratios
  • Leverage ratio
  • Interest Rate, Currency and Credit Default 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
    • benchmarking
  • Interest rate risk management with swaps compared to other interest rate derivatives
  • Swaps and futures
    • Swaps and FRAs
    • Swaps caps, floors and collars

Case Study - Asset management

  • Blackrock and Blackstone
  • Active and passive fund management, leverage
  • Wealth creation for clients and shareholders
  • Influencing the markets

Day 4

Use Strips as a Benchmark for Pricing non-standard Bonds

  • Pricing Bonds revisited
  • UST STRIPS (POs and IOs)
  • 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 rates
  • The use 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
  • Summarising the forward rates

Case Study - Debt origination

  • Issuing bonds under fixed price re-offer
  • Syndication
  • Book building
  • Pot deals
  • 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 vs. Floating Rate Notes (FRNs)
  • 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 (CARDs), (CARs) etc
  • Credit-linked Notes (CLN)
  • Re-securitisation
  • Asset-Backed Commercial Paper (ABCP)
  • Wrapped bonds
  • Covered bonds

Day 5

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 (NPV)

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
  • Comparing asset swap spread to z-spread

Credit Curves, Benchmarking and Corporate Bond Spreads

  • The swap rate as key part of the term structure of interest rates
  • How it all fits together
  • Spread over Government Bonds
  • Spread over (interpolated) Swaps curve
  • CDS spread
  • Coupon spread
  • Libor spread
  • Asset swap spread
  • Asset swap margin
  • Z-spread

Value Adjustments to Swaps Pricing

  • Monte Carlo simulation of future swap values
  • Credit value adjustment
  • XVA: value adjustments for credit, funding, margin and capital
  • Collateral posting

Three Things Happening in the Markets and What Participants will Learn

  • Interest rates are going up?
    • How to manage a fixed income portfolio from losing money
    • How to lock in funding rates
  • Corporations and property developers are looking to issue bonds now
    • How to issue bonds
    • How to benefit from the still low funding levels
    • Compare funding of the loan and bond markets across currencies
  • Sovereign debt risk is continuously deteriorating

Summary / Review

  • “A swap is not a swap”


Alan McDougall

Alan helps banks and their clients to manage risk. He has designed and delivered over 1600 highly interactive training days in more than 40 countries for the International Faculty of Finance, Goldman Sachs, Morgan Stanley, JP Morgan, HSBC, Deutsche Bank, Rabobank, BNP Paribas, Societe Generale, U...

Petros Geroulanos

Petros Geroulanos has over 25 years of professional experience in trading, sales and product development. He has trained tens of thousands of participants originating from more than 100 countries working at 400 different companies. He has conducted workshops in more than 30 countries in Europe,...

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Coursalytics is an independent platform to find, compare, and book executive courses. Coursalytics is not endorsed by, sponsored by, or otherwise affiliated with any business school or university.

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