Fixed Income Flashcards by toby riley

Define fixed income

any borrowing of money is debt (fixed income security)
- promised payments are contractual obligations
- payment of interest and principal are a prior claim on
the company’s earnings and assets versus equity

How well did you know this?

Not at all

Perfectly

Basic features of a bond: Issuer

How well did you know this?

Not at all

Perfectly

Features of a bond: maturity and par value

How well did you know this?

Not at all

Perfectly

Features of a bond: Coupon rate and frequency

How well did you know this?

Not at all

Perfectly

Features of a bond: Denomination

How well did you know this?

Not at all

Perfectly

What are the bond yield measures and relationship between YTM and price

How well did you know this?

Not at all

Perfectly

What is Bond indenture and what does the trust deed include 1?

How well did you know this?

Not at all

Perfectly

What does the trust deed contain: sources of payment proceeds and asset backing

How well did you know this?

Not at all

Perfectly

Trust deed : credit enhancements

How well did you know this?

Not at all

Perfectly

Trust deed: covenants and types of negtaive covenants

Covenants - legally enforceable rules
Affirmative - typically administrative in nature
- what issuers are required to do

How well did you know this?

Not at all

Perfectly

Describe domestic, foreign and Euro bonds

How well did you know this?

Not at all

Perfectly

Describe global bonds and the bond tax considerations

How well did you know this?

Not at all

Perfectly

Describe Bullet, fully and partially amortising bonds

Bullet: Bonds pays interest payment with large balloon payment at the end. Most common and all govt bonds are like this.

Amortising: Payments of interest and principal periodically. Partially amortising means there is still a larger balloon payment at the end.

How well did you know this?

Not at all

Perfectly

Describe a sinking fund arrangement

How well did you know this?

Not at all

Perfectly

Describe the payment structures of floating rate note, Step-up coupon, credit-linked coupon , Payment-in-kind

How well did you know this?

Not at all

Perfectly

Describe deferred coupon bonds (split coupons) and Index-linked bonds

How well did you know this?

Not at all

Perfectly

Describe the types of index linked bonds

How well did you know this?

Not at all

Perfectly

What is a callable bond and what are the different types

calls can be: American - continuously callable
European - only on call date (1 date)
Bermuda - only on call dates after the lockout period
- usually on coupon dates

How well did you know this?

Not at all

Perfectly

Describe a putable bond

How well did you know this?

Not at all

Perfectly

Describe a convertible bond

How well did you know this?

Not at all

Perfectly

First four methods of fixed income market classification

How well did you know this?

Not at all

Perfectly

What are the steps in a public debt offering

How well did you know this?

Not at all

Perfectly

Describe underwritten offerings, best-efforts offering, and auction

How well did you know this?

Not at all

Perfectly

Describe a private placement and secondary bond markets

How well did you know this?

Not at all

Perfectly

What are sovereign bonds and their different types

Describe non-soverign, quasi-govt and supranational bonds

Types of corporate debt

Difference betweens us and euro commercial paper

Public debt coupon and principal payment structures

Types of structured financial instruments: Capital protected and Yield enhancement

Participation instruments and leveraged insrtuments

Short term funding alternatives: Retail deposits and reserve funds?

Short term funding alternatives: Interbank funds and large denomination negotiable CDs

What is a repurchase and reverse agreement (repo)?

Repo from the lenders perspective

What is the YTM of a bond and what does it assume?

Yield-to-Maturity - if PV is known ( i.e. bond’s market price), YTM can be calculated - YTM is the IRR of the bond’s cash flows

How are bond prices affected by changes in market interest rate, convexity effect and the coupon effect and the maturity effect?

4/ for the same coupon rate: longer-term bond is more price sensitive than a shorter term bond

What are the two price components of bonds that are between coupon dates?

What is matrix pricing and the steps?

How do periodicity conversions to find bond equivalent yields for different coupon frequency bonds and what is difference between bond equivalent yield and effective annual yield?

bond equivalent yield is annualised while effective annual yield is compounded

YTM conversion calculation example

Yield measures for government bonds

Describe how flat price, full price and accrued interest relate?

Full price = normal bond price *(1+ytm)^(AI period) Flat price = full - accrued interest Accrued interest = AI period *coupon payment

Conventions of floating rate bonds

Pricing of money market instruments

Pricing a floating rate bond example

Formula for add on rates for money market instruments

Converting from discount rate to add on rate

Yield curve for bonds that are the same

Forward curve and calculating implied forward rate

What is the par curve?

What is the I, G and Z spread?

Which factors affect the spread and reference components?

What are the benefits of securitisation

What is the process of securitisation and who is involved?

Explain time tranching

Explain the balance sheet implications of the SPV vs the originator

Explain combined credit and time tranching

What is a residential MBS?

What are mortgage pass through securities?

What is the single monthly mortality rate? and what is the conditional prepayment rate

CPR = 1 – (1 - SMM)^12 (annualised)

What does 100 PSA mean and how is CPR calculated?

Weighted average life of MBS? And what happens when mortgage rate drops

How does pre-payment risk manifest itself through extension and contraction risk?

How are collateralised mortage obligation (CMO) constructed?

Planned Amortization Class (PAC) & Support Tranches

What is a floating rate tranche?

Which tranche structure is most suitable for, investor concerned about contraction risk, investor looking for stable average life, Investor expecting rates to fall, investor ok with prepayment risk for high expected return?

Difference between agency and non-agency residential MBS?

What are internal and external credit enhancements?

What are commercial MBS?

Call protection for a CMBS?

What are Auto-loan backed securities?

What are credit-card backed securities?

What is the payment structure for CCBS?

What is a CDO?

What are Covered bonds and the three major redemption regimes?

What are three sources of risk for a fixed rate bond and what does the YTM assume?

YTM assumes 1) held to maturity 2) No default 3) Coupons re-invested at same rate of interest

What is bond duration?

What are the types of bond duration?

What is modified duration?

Approx Modified duration formula?

What is effective duration and why does normal duration not work for bonds with embedded options?

Explain the difference between effective duration and modified, and does a change in the price yield curve equal a change in yield?

Modified duration measures the change in bond price from changes in the bonds own yield while effective duration measures it with respect to changes in the benchmark yield curve

What is key rate duration and when is it used?

Effective duration is the sum of all key rate durations for each maturity and thus %change in portfolio value

What are the properties of bond duration, with changes in coupon and YTM, and compare the properties of a discount, zero-coupon and perpetual bond?

Duration of bond portfolio calculation

What is money duration?

What are the primary and secondary effects of changes in value from changes in YTM and the formula for convexity?

Interpret the duration gap

Summary of the components of risk in a corporate bond?

Difference between Analytical and empirical duration?

Empirical duration Is based on historic price movements. It is more likelv to be lower than analvtical duration for bonds that have credit risk. as credit spreads tend to change when benchmark interest rates change. For example, when interest rates decrease in times of market stress, credit spreads often rise, offsetting some of the decrease in benchmark rates. For bonds with high credit risk, the widening of the spread may more than offset the decrease leading to negative duration. The greater the difference between the analytical and emperical then the greater the credit risk.