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FINANCIAL MARKET COURSES

Fixed Income Analysis

Courses In This Course

This course describes the concept of bond futures and basis trading as used in the futures market. Key concepts such as cheapest-to-deliver bonds, implied repo rates and conversion factors are discussed in detail. The course also covers zero-coupon bonds, the concept of relative value trading, and the use of derivative instruments to hedge a fixed income portfolio.

Objectives

In this course, you will explore:

Bond futures contracts and their use as a hedging vehicle

The concept of basis as used in the bond futures market

The use of basis trades as part of a portfolio management strategy

Various aspects of zero-coupon bonds, including the reasons for investing in these instruments and their risks

The use of options and swaps to hedge a bond portfolio

The concept of relative value trading and the associated strategies and risks

Prerequisite Knowledge

A solid understanding of futures is assumed.

Learner Profile

This course is designed for:

Senior managers

Dealers and traders

Treasury staff

Operations and support staff

Finance and accounting staff

Risk staff

IT staff

Compliance and regulatory staff

  •    BOND FUTURES

    Overview

    Bond futures markets play an important role within global financial markets. They enhance the distribution of price information leading to a more efficient financial marketplace in terms of derivative products and their underlying instruments.

     

    This course will describe the key characteristics of bond futures contracts, and explain the valuation and hedging processes for these derivatives.

    Course Duration

    60 mins

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    Prerequisite Knowledge

    Bonds - An Introduction

    Bond Prices & Yields

    Duration & Convexity

    Forwards & Futures - An Introduction

  •    BOND FUTURES BASIS

    Overview

    Futures contracts are often used in fixed income markets as a risk management tool. To know how to use these instruments correctly, it is essential to understand the concept of bond futures basis. This is the difference between the futures and the cash price for an underlying government bond.

     

    This course defines bond futures basis and identifies its sources. It also describes how basis evolves over time and analyzes the changes in the cheapest-to-deliver bond.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Forwards & Futures - An Introduction

    Forwards & Futures - Hedging (Part I)

    Forwards & Futures - Hedging (Part II)

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  •    BASIS TRADING

    Overview

    Basis is the term given to the difference between the cash bond price and the price of the nearby futures contract. In this course, we examine what this actually means, and the reasons for such a differential. The factors causing this differential do not stay constant over time, so we investigate how time affects these factors. Finally, we explain why in most cases only one bond from the many deliverable bonds into a bond futures contract is ever chosen to be delivered.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Forwards & Futures - An Introduction

    Bond Futures Basis

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  •    ZERO-COUPON BONDS

    Overview

    A zero-coupon bond is a bond with no coupon rate. Investors in these securities do not receive any interest payments during the life of the bonds. Instead, they purchase zero-coupon bonds at a deep discount to par and receive a lump sum on maturity.

     

    This course will describe the motivations to invest in a zero-coupon bond. The course will also provide an overview of 'stripping', the process of separating out each coupon payment and the principal payment from a standard coupon-paying bond. Finally, this course will describe how to derive a zero-coupon yield curve from par-coupon rates and describe the risks associated with investing in zero-coupon bonds.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Prior to studying this course, you should have a sound understanding of bonds and related concepts as described in the following courses:

     

    Bonds - An Introduction

    Bond Prices & Yields

    Duration & Convexity

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  •    HIGH-YIELD DEBT

    Overview

    High yield debt refers to bonds or loans that are rated below investment grade, that is, rated below Baa3 (Moody’s) or BBB- (Standard & Poor’s). This course focuses on high yield bonds, also known as junk bonds or non-investment grade bonds. The course explains the various features of high-yield debt. It also identifies the different types of high yield debt, their benefits, and risks. Finally, the course describes the issuers of and investors in high yield debt, and their motivations.

    Course Duration

    50 mins

    Prerequisite Knowledge

    Bonds - An Introduction

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  •    BOND HEDGING WITH OPTIONS

    Overview

    Bond investors expect to preserve their invested principal and simultaneously gain from periodic interest payments received from the bond issuer. Although investors are likely to receive their principal in full at maturity, the value of their position erodes if interest rates rise.

     

    Fund managers use hedges to protect their bond portfolios against rising interest rates. Essentially, hedges are a type of insurance against an unfavorable outcome.

     

    This course will look at some of the primary option-based bond hedging strategies and examine their features and characteristics in detail. The course will also discuss the design and implementation of these strategies.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Bonds - An Introduction

    Bond Prices & Yields

    Duration & Convexity

    Options - An Introduction

    Options - Introduction to Option Valuation

    Options - Trading Strategies

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  •   BOND HEDGING WITH SWAPS

    Overview

    Fund managers can protect their bond portfolios against rising interest rates by implementing hedges. Essentially, hedges are a type of insurance against the possibility of unfavorable occurrences. Hedges can be structured using many different underlying instruments, such as futures, options, and swaps. They can also be implemented by using many different hedging strategies.

     

    This course focuses on the use of interest rate swaps to hedge bond portfolios. Swap contracts can change the cash flow characteristics of an asset, thereby reducing or eliminating the interest rate exposure for that particular asset. The course examines the use of par swap contracts as the underlying hedging instrument, the features and characteristics of such hedges, and demonstrates how to implement a swap-based hedging strategy.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Prior to studying this course, you should have a solid understanding of swaps and fixed income interest rate sensitivities. We recommend you study the following courses in particular:

     

    Swaps - An Introduction

    Bond Prices & Yields

    Duration & Convexity

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  •    RELATIVE VALUE TRADING - AN INTRODUCTION

    Overview

    In the trading rooms of major investment banks in the early 1990s, you would have come across young market makers who would have explained that much of their performance was due to exploiting market anomalies through relative value trading strategies. RV trading involves being neutral to moves up/down in the overall market, while taking advantage of price differentials between individual assets. It is an attempt to benefit from the relative prices of assets that are seen as being out of line.

     

    This course defines RV trading and differentiates it from arbitrage and directional trading. It examines the characteristics of the market players and the importance of leverage in RV trading. The course also takes a detailed look at the methods used to identify RV trade opportunities.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Prior to studying this course, you should have a solid understanding of options and how they are priced as detailed in the following courses:

     

    Probability

    Distributions & Hypothesis Testing

    Bond Prices & Yields

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  •    RELATIVE VALUE TRADING - STRATEGIES

       & RISKS

    Overview

    RV trading involves being neutral to moves up/down in the overall market, while taking advantage of price differentials between individual assets. It is an attempt to benefit from the relative prices of assets that are seen as being out of line.

     

    This course examines RV trading strategies within a market (but excludes asset allocation strategies between markets), where offsetting (usually long/short) positions are taken in different assets. Trades are not dependent on the general direction of underlying markets. The course also focuses on trades that exploit some economic relationship between the different assets. This may be evidenced by historic correlation, but may also be the result of a trader's investigation. Finally in this course, we outline some of the risks and pitfalls for RV traders. A case-study of the LTCM hedge fund is included as a reminder of how these dangers are realized in practice.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Prior to studying this course, you should have a solid understanding of options and how they are priced as detailed in the following courses:

     

    Duration & Convexity

    Bond Strategies - Fundamentals

    Relative Value Trading - An Introduction

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