Fixed Income Flashcards
What is the tenor?
Time remaining until maturity
What is a surety bond?
A bond guaranteed by a third party
Compare Eurobonds, foreign bonds, global bonds
Euro: Outside jurisdictions
Foreign: Issued by foreign entity in local currency
Global: Issued in both euro market and domestic market
What is an original issue tax discount provision?
Able to include prorated amount of discount in TI every year
What happens to a capital indexed bond with a CPI increase?
Principal amount increases by % amount
What are covered bonds?
Backed by asset pool that is updated when non-performing
How are new issue sovereign bonds offered?
Auction
What is a shelf registration?
Sell more bonds to public without a new offering circular
In regard to bonds what is the inverse effect?
Bond price inversely related to market discount rate
In regard to bonds what is the convexity effect?
% is greater when market discount goes down than when it goes up
In regard to bonds what is the coupon effect?
Lower coupon bond has higher % change with same change in market discount
In regard to bonds what is the maturity effect?
Longer term bond has greater % change with same change in market discount
What needs to happen when calculating bond with a variable spot rate?
Do full PV calc on each year using spot rate as discount rate
What is a par curve?
A sequence of YTMs such that each bond is at par
What is a spot curve?
A yield curve constructed from a sequence of YTMs on zero-coupons
What is a g-spread?
Spread on a government bond. G for Gov
What is an I spread?
Spread on interest rate swap rate. I for interest swap
What is a z- spread?
Spread on zero volatility. Z for zero-volatility
What is the OAS?
Option adjusted spread is Z-spread minus value of option
In securitization the SPE is responsible for:
Issuing the security
What does time tranching provide for investors?
The ability to choose between extension and contraction risk
What is contraction risk?
Interest declines: prepayments increase contracting the loan
What is extension risk?
Interest rises: prepayments decrease, extending the loan
What are credit enhancements for a non-agency RMBS?
Subordinated debt
Reserve accounts
Overcollateralization
What are the most common CMO tranches?
Sequential pay:
PAC:
Support:
Floating-rate:
What is the main difference between RMBS and CMBS?
CMBS can have call protection.
What does duration measure?
Sensitivity of a bond’s full price to changes in YTM
What is yield duration?
Sensitivity of a bond to its own YTM
What is curve duration?
Sensitivity of the bond price to a benchmark yield curve
What is the Macaulay Duration?
Weighted average of time to payments, with weights being each share of the full price attributable to each payment
What is a horizon yield?
IRR between total return and purchase price
What is the typical debt subordination?
Mortgage/Lien/ Secured Senior Senior unsecured Senior subordinated Junior/
What is notching?
Moving ratings up or down from issuer rating after other factors considered
Higher the rating, the smaller the notching adjustment
What is structural subordination?
Debt at parent and child company
