Fixed Income Securities Flashcards
What are the term classifications of:
Short Term Bonds
Medium Term Bonds
Long Term Bonds
Short Term - < 7 Years
Medium – 7 – 15 Years
Long-Term > 15 Years
To reduce default risk, what do corporations and FIGs use to issue debt?
Special Purpose Vehicles
What is a fixed charge?
Fixed charge is a legal charge or mortgage, placed upon a company’s fixed or permanent assets.
What is a floating charge?
Floating charge places a more general charge on those assets that continually flow through the business.
What is a Eurobond?
A eurobond is an international bond that is denominated in a currency not native to the country where it is issued.
What form are Eurobonds issued in?
Bearer Form
This means that they are often held at a clearing house and are immunised.
What has higher priority during a liquidation, Fixed or Floating charges?
In liquidations fixed charges have priority over floating charges.
What types of assets can an ABS be backed by?
Mortgages, Credit Card cash flow, Car loans, Home equity loans, student loans.
Who issues UK government bonds?
The DMO
In some cases, the DMO can take the Gilts onto its own books if the auction is not fully taken up.
What are the two ways in which the DMO sell Gilts?
Tender and Auction
What obligations do GEMMs have?
Quote a two way price to customers
Exceptions – Do not need to provide firm prices to other GEMMs, market makers and inter-dealer brokers.
What three privileges to GEMMs get?
Exclusive rights to competitive telephone bidding
Exclusive facility to trade as counterparty of DMO (Standing repo facility)
Exclusive access to IDB screens
What does the letter “A” next to a Gilt denote?
The letter A next to a GILT indicates that when a tranche is issued, the next payment may not include a full coupon.
What is the minimum competitive bid in a DMO gilt auction?
£1,000,000
GEMMs and OMOs only.
What is the maximum non-competitive bid size in a DMO gilt auction?
£500,000
No price bid, pay volume weighted average price of succesful competitive bids.
What market are TAPS and interim fundings done in?
The secondary market via GEMMs
What is the differene between pricing in an Auction and a Tender
In an Auction - Bidding is competetive, only those paying high enough will be accepted. You pay what you bid.
In a tender - Bids are submitted, and the highest price that all gilts can be sold at is used - this could be more or less than what you bid.
What is the minimum bid size in a UK T-Bill Tender?
£500,000 (bids must be in multiples of £50,000)
Subsequent trading is done in multiples of £25,000.
When do UK T-Bills settle?
T+1
Who are primary market participants regulated by?
The FCA and the PRA
What are the two main types of bond switching in portfolios?
Anomaly and Policy Switching
What is the difference between anomaly and policy switching?
Anomaly switching switches between two bonds with similar characteristics, but different prices or yields?
Policy switching is between bonds with dissimilar characteristics.
What is the third type of bond switching called?
Intermarket Spread Switching
Switching between Corporate and Sovereign debt when spreads are perceived to be excessive - or when a flight to quality is set to take place.
What reasons might cause a portfolio manager to undertake a policy switch?
Changes in:
Interest Rates
The Yield Curve
Credit Ratings
