Fixed Income - Trading, Investing and Hedging

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Introduction to Bond Trading and Investing

  • Fixed Income Markets and Participants
  • A Framework for Assessing Fixed Income Trading Strategies
  • Overview of Trading and Hedging Tools
  • Fixed Income Trends and Trading Opportunities in the Post-Crisis Environment

Trading the Yield Curve

  • Brief Review of Yield Curve Analysis
  • Repo Trading and “Tailing”
  • Margin Trades
  • Yield Spread Trades
  • Curve Flatteners and Steepeners
  • Dumbbells/Bullets
  • Barbells and Butterflies
  • Pure Duration Bets
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Portfolio Strategies

  • Portfolio Barbells
  • Portfolio “Butterflies”
  • Credit Barbells
  • Immunized Portfolios
    • Traditional immunization (single-factor)
    • Multifactor-immunization
  • Strategies Based Upon “Key Rate Duration”
  • Laddered Portfolios
    • Why laddered portfolios can outperform other bond strategies
    • Building a portfolio of bonds with staggered maturities
    • Maintaining the ladder through reinvestments
  • Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Arbitrage and Relative Value Strategies

  • Identifying and Exploiting Arbitrage Opportunities through “Cheap/Rich” Analysis
  • On-the-Run/Off-the-Run Trades
    • Case study: LTCM
  • Cross-market and Sector Switches
    • Domestic and international
  • Convertible Arbitrage
  • Asset Swaps versus Straight Bond Arbitrage

Currency Hedged Strategies

  • Sources of Return on Foreign Bonds
  • Unhedged Foreign Bond
  • Cash Flow Hedged Foreign Bond
  • Present Value Hedged Foreign Bond
  • Cross Hedged Foreign Bond
  • Proxy Hedged Foreign Bond
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Investing in Bond-Backed Structures

  • Treasury Strips
    • “STRIPS”
    • “RECONS”
  • Mortgage Strips
    • Collaterized Mortgage Obligations
    • Targeted amortization classes
    • Planned amortization classes
    • IO/PO strips
    • Inverse Floaters
  • Collaterized Bond Obligations
    • Funded structures
    • Synthetic CBOs
    • Hybrid structures
  • Credit Correlation Trades
  • Exercises

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Using Derivates for Fixed-income Trading, Investing and Hedging

  • Advantages and Disadvantages of Using Derivates
  • Using Futures in Bond Trading and Hedging
    • Outright trades and basis trades
    • Calendar spreads (straddles)
    • Intermarket spreads
    • Hedging single positions and portfolios
    • Dynamic portfolio hedging
  • Using Options in Bond Trading and Hedging
    • Directional and Volatility trading
    • Using “Quanto” options to hedge dynamic currency risk etc.
  • Using Swaps and other Derivatives
    • Creating synthetic, capped and floored cash flows
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Credit Trading and Investing

  • Investment Grade vs. High-Yield Bonds
  • Understanding the Credit Risk of Corporate Bonds
  • Credit Spreads and Credit Curves
  • Calculating the Fair Credit Spread
  • Credit Derivatives and their Applications
    • Closer look at Credit Default Swap (CDS)
    • Hedging or leveraging credit risk
    • Shorting credit risk
    • Creating synthetic corporate bonds
    • CDS curve strategies and trading
  • Investing in Distressed Debt
  • Investing in Emerging Market Bonds
    • Opportunities, risks and strategies
  • Exercises

Evaluation and Termination of the Seminar

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