Fixed Income Flashcards
SOFR
Secured Overnight Funding Rate (US)
Example of MRR (market reference rate)
Discount window lending
Last resort lending from central bank. Higher rate than CB funds rate, and likely to inducing scrutiny and restrictions on borrower
Repo rate
ANNUALISED interest rate implied but difference in purchase and repurchase price. 360 day convention
Yield to maturity
The discount rate that makes the present values of future cash flows equal to its price
Bond equivalent yield (for money market securities)
Add on yield annualised based on 365 day year
QM in FRN
Quoted margin - fixed margin above MMR actually paid on coupon
DM in FRN
Discount margin - margin required to price FRN
Money market securities
DEBT securities with a yield < 1yr
A bond’s simple yield
Takes into account premium or discount by assuming it decking’s linearly till maturity
Carrying value
Price along constant yield price trajectory.
Represents amortising value of premium/ discount towards par as bond reaches maturity at rate that matches YTM as long as it is unchanged.
Modified duration
Macauley duration/(1+periodic rate of return)
Periodic rate of return = YTM/ periodicity
Modified duration
% change in bonds price given 1% change in YTM. (-ModDurxdeltaYTM)
Cross default clause in bond indenture
Default on one bond issue causes a default in all bond issues.
Pari Passu clause
All bonds of a certain type rank equally in the default process
Recovery rate (credit risk)
Proportion recovered if issuer defaults. (The rest is is called LOSS SEVERITY)
