Fixed Income Trading and Risk Management The Complete Guide 1st Edition by Alexander During ISBN 1119756359 9781119756354

Part One: Preliminaries

Chapter 1: Introduction

Chapter 2: Money, Credit and Banking

• Abstract properties of money
• Early forms of money
  • Paper money and bank notes
• Fiat money
  • Fiat money and trade

Chapter 3: Banks

• Banks and bank money creation
• Categories of banks

Chapter 4: Bank Money Creation

• Single-bank introduction
• Extension to multiple banks
• Transfer settlement in central bank money
• Trade and non-bank credit
  • Non-cash trading instruments
  • Discounting
  • Delineating payment instruments from money
• Digital token monies and cryptocurrencies
• The money multiplier

Chapter 5: The Role of Central Banks

• Introduction
• Monetary financing

Chapter 6: Monetary Policy

• Objectives of monetary policy
• Monetary policy under inflation targeting
• Central bank operational frameworks
  • Symmetric interest rate corridors
  • Asymmetric lending corridors

Chapter 7: Operational Frameworks

• Control of the money supply
• Liquidity provision: Rediscounting, outright purchases and Lombard lending
• Liquidity absorption: Asset sales and reverse repos
• The impact of FX operations

Chapter 8: Interaction between Frameworks and Policy

• Volatility
• Collateral

Chapter 9: Non-Standard Monetary Policy

• Quantitative easing
  • The Monetary Effect of Large-Scale Asset Purchases
  • Market liquidity and central bank asset purchases
  • Helicopter money
  • Choice of methods and assets
• Practical experience
  • QE, money multipliers and FX
  • Bank of Japan 2013 QE experience
  • Lessons from the initial BoJ quantitative easing
• Negative interest rates
• The specific situation of the ECB

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Part Two: Cash Instruments

Chapter 10: Contract and Instrument Types

• Securities and bilateral contracts
• Security identifiers
  • ISIN codes
  • CUSIP codes

Chapter 11: Trading and Settlement

• Trading
  • Trading and price formation
  • Trading venues
  • The OTC trade lifecycle
    • The trade inquiry
    • Negotiation
    • Agreement
    • Recording
    • Enrichment
    • Reporting
    • Pre-confirmation
    • Allocation
    • Confirmation
    • Settlement instructions
    • Fails
    • Reconciliation
  • The exchange trade cycle
  • Trading in competition versus single dealer inquiries and orders
  • Mistrades
• Settlement
  • Settlement mechanisms
  • Settlement conventions

Chapter 12: Central Clearing

• Direct clearing
• Indirect clearing
  • Agency clearing
  • Principal clearing
  • Hybrid clearing models
• Contract value adjustments (xVA)
  • Credit Value Adjustment
  • Funding Value Adjustment
  • Debit Value Adjustment

Chapter 13: The Money Market

• Money market instruments
• Discount factors
• Daycount conventions
• Money market interest rates
• Compounding
• LIBOR, Euribor, and friends
• Overnight benchmarks
• Benchmark reform
• Money market futures and futures trading
  • Money market futures
  • Identification of futures contracts
  • Futures trading basics
  • Convexity adjustment

Chapter 14: The Repo Market

• The repurchase market
• Haircut
• Variations of repurchase transactions
• Rehypothecation

Chapter 15: Spot and Forward Rates

• Forward rates
• No-arbitrage calculations
• Official rates versus term rates
  • The turn premium
  • Matching policy expectations to market rates

Chapter 16: The Bond Market

• Introduction
• Cashflow types
  • Bullet bonds
  • Zero coupon bonds, perpetuals and annuities
• Issuer types
  • Joint issuance
  • Supranationals
• Governing law and contractual clauses
• Bond markets
  • The primary market
  • The secondary market I: (interdealer market)
  • The secondary market II: (customer-facing market)
• Accrued interest
• Yield
  • Running yield
  • Simple yield
  • Compound yield
  • Bond-equivalent yield
• Interest rate risk
• Convexity
• Bond value decomposition
• Carry

Chapter 17: Floating-Rate Notes

• Coupon reset mechanics
• Libor and OIS-linked notes
• Discount margin
• CMS and CMT floaters

Chapter 18: Asset Markets and Liquidity

• Concepts
• Liquidity measurement
  • Taxonomy of liquidity measures
• Examples
• Liquidity premium
• Liquidity and volatility

Chapter 19: Curves and Curve Models

• Models
• Yield curve representation and interpretations
  • Discount factors versus par curves
• Market-based curve representations
  • Bootstrapping
  • Reverse bootstrapping
• Parametric curve models
  • The Nelson-Siegel and Nelson-Siegel-Svensson splines
  • Polynomial splines
  • The exponential spline
  • The Vasicek spline
  • Composite models
• Fitting curve models

Chapter 20: Curve Analysis

• Expectations
• Convexity bias
• Term risk premium
• Preferred habitat
  • Asset–liability matching
  • Regulatory constraints
  • Passive investing
  • Central bank reserve portfolios
  • Market technicals

Chapter 21: Carry and Roll-Down

Chapter 22: Curve Spreads

• Z-spread
• Par spread
• Swap spreads
  • Asset swap spreads
  • I-spreads
  • The TED spread

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Part Three: Inflation-Linked Debt

Chapter 23: Inflation-Indexed Bonds

• Introduction
  • Cashflows of inflation-linked bonds
  • Quotation of index-linked bonds
• Rebalancing, rebasing and revision of CPI indices
• Inflation seasonality
• Price formation in inflation-linked markets
• Return measures of inflation-linked bonds
• Breakeven inflation
• Carry on inflation-indexed bonds
• Comprehensive inflation modelling
• Inflation models and expectations

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Part Four: Defaultable Claims

Chapter 24: Credit Risk

• Default, insolvency, and bankruptcy
• Seniority and subordination
  • Time subordination and acceleration
  • Contractual subordination
  • Statutory subordination
  • Joint liabilities and credit support
  • Sovereign debt
• The default process
  • Collective action clauses
  • Debt exchanges and consent solicitations
  • Managed defaults
  • Wind-downs
• Credit ratings
  • Rating migration
  • Alternative rating approaches

Chapter 25: Covered Bonds

• Statutory covered bonds
• Danish covered bonds
• Structured covered bonds
• Covered bond credit risk analysis

Chapter 26: Asset-Backed Securities

• The ABS issuance process
• Default risk of ABS
• Maturity of ABS

Chapter 27: Residential Mortgage-Backed Securities

• Residential mortgage prepayments
• Prepayment modelling

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Part Five: Derivatives

Chapter 28: Bond Futures

• Introduction
• Futures trading patterns
  • Open interest and trading volume
  • CFTC data for US futures contracts
• Valuation of physically delivered bond futures
  • Basis and implied repo rate
  • Conversion factors and the notional coupon
  • The cash-and-carry arbitrage
  • The quality option
  • Hedging with futures
• Futures rolls
  • Roll ratios
  • Advanced futures delivery models
• Delivery windows
• Interaction between futures and bonds
• Futures squeezes
• Cash-settled futures
  • Exchange-for-physical transactions
• New bond issues

Chapter 29: Swaps

• Introduction
• Plain vanilla swaps
• Trade compression and re-couponing

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Part Six: Standard Trading Strategies

Chapter 30: Trading Principles

• Definitions
• Trade identification
• Trade portfolios

Chapter 31: Curve Trading

• Simple curve trades
  • Outright Trades
  • Steepeners and Flatteners
  • Butterflies
  • Condors
• Intrinsic curve movements
  • Alternative specifications

Chapter 32: Bond Trading

• Bond relative value
• Relative value strategies
  • Spread widener/tightener
  • Basis trade
  • Bond spread
  • Bond spread with curve hedge
  • Alternative strategies

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Part Seven: Risk Management

Chapter 33: Principal Component Analysis

• PCA as generalized regression
• Measuring data complexity with PCA

Chapter 34: Bond Index Mechanics

• Bond index principles
• Index rebalancing

Chapter 35: Portfolio Risk Management

• Risk-neutral portfolios
• Index tracking
  • Factor analysis and spanning sets
  • Friction effects

Chapter 36: Hedging

• Introduction
• Duration-neutral hedges
• Regression hedges
• Yield curve model hedges

Chapter 37: Mean-Variance Optimisation

Chapter 38: Portfolio Rebalancing

• Passive and semi-passive strategies
  • No reallocation
  • Passive management
  • Index replication
  • Constant asset allocation
  • Trend-Following
  • Mean reversion
• Numerical examples

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Part Eight: References

Chapter 39: Selected Global Bond Markets

• Euro area
  • Austria
  • Belgium
  • Finland
  • France
  • Germany
  • Greece
  • Ireland
  • Italy
  • The Netherlands
  • Portugal
  • Spain
• Iceland
• Japan
• Sweden
• United Kingdom
• United States of America