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Fixed Income Securities, 4th Edition
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Fixed Income Securities, 4th Edition
by Bruce Tuckman, Angel Serrat
Fixed Income Securities, 4th Edition
Cover
Title Page
Copyright
Preface
List of Acronyms
CHAPTER 0: Overview
CHAPTER 1: Prices, Discount Factors, and Arbitrage
CHAPTER 2: Swap, Spot, and Forward Rates
CHAPTER 3: Returns, Yields, Spreads, and P&L Attribution
CHAPTER 4: DV01, Duration, and Convexity
CHAPTER 5: Key‐Rate, Partial, and Forward‐Bucket '01s and Durations
CHAPTER 6: Regression Hedging and Principal Component Analysis
CHAPTER 7: Arbitrage Pricing with Term Structure Models
CHAPTER 8: Expectations, Risk Premium, Convexity, and the Shape of the Term Structure
CHAPTER 9: The Vasicek and Gauss+ Models
CHAPTER 10: Repurchase Agreements and Financing
CHAPTER 11: Note and Bond Futures
CHAPTER 12: Short‐Term Rates and Their Derivatives
CHAPTER 13: Interest Rate Swaps
CHAPTER 14: Corporate Debt and Credit Default Swaps
CHAPTER 15: Mortgages and Mortgage‐Backed Securities
CHAPTER 16: Fixed Income Options
APPENDIX TO CHAPTER 1: Prices, Discount Factors, and Arbitrage
APPENDIX TO CHAPTER 2: Swap, Spot, and Forward Rates
APPENDIX TO CHAPTER 3: Returns, Yields, Spreads, and P&L Attribution
APPENDIX TO CHAPTER 4: DV01, Duration, and Convexity
APPENDIX TO CHAPTER 6: Regression Hedging and Principal Component Analysis
APPENDIX TO CHAPTER 8: Expectations, Risk Premium, Convexity and the Shape of the Term Structure
APPENDIX TO CHAPTER 9: The Vasicek and Gauss+ Models
APPENDIX TO CHAPTER 11: Note and Bond Futures
APPENDIX TO CHAPTER 12: Short‐Term Rates and Their Derivatives
APPENDIX TO CHAPTER 13: Interest Rate Swaps
APPENDIX TO CHAPTER 14: Corporate Debt and Credit Default Swaps
APPENDIX TO CHAPTER 15: Mortgages and Mortgage‐Backed Securities
APPENDIX TO CHAPTER 16: Fixed Income Options
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Index
End User License Agreement
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Fixed Income Securities, 4th Edition
Table of Contents
Cover
Title Page
Copyright
Preface
EXTENDED EXAMPLES, APPLICATIONS, AND CASES
List of Acronyms
CHAPTER 0: Overview
0.1 GLOBAL FIXED INCOME MARKETS
0.2 US MARKETS
0.3 US MARKET PARTICIPANTS
0.4 MONETARY POLICY WITH ABUNDANT RESERVES
0.5 NEGATIVE RATES AND QE IN EUROPE AND JAPAN
0.6 TRADING AND LIQUIDITY
NOTES
CHAPTER 1: Prices, Discount Factors, and Arbitrage
1.1 GOVERNMENT COUPON BONDS
1.2 DISCOUNT FACTORS
1.3 THE LAW OF ONE PRICE
1.4 ARBITRAGE AND THE LAW OF ONE PRICE
1.5 APPLICATION: IDIOSYNCRATIC PRICING OF TREASURY STRIPS
1.6 ACCRUED INTEREST
1.7 DAY‐COUNT CONVENTIONS
NOTES
CHAPTER 2: Swap, Spot, and Forward Rates
2.1 INTEREST RATE QUOTATIONS
2.2 INTEREST RATE SWAPS
2.3 PRICING INTEREST RATE SWAPS
2.4 SPOT RATES
2.5 FORWARD RATES
2.6 RELATIONSHIPS BETWEEN SWAP, SPOT, AND FORWARD RATES
CHAPTER 3: Returns, Yields, Spreads, and P&L Attribution
3.1 REALIZED RETURNS
3.2 YIELD TO MATURITY
3.3 YIELD AND RETURN
3.4 YIELD AND RELATIVE VALUE
3.5 SPREADS
3.6 APPLICATION: SPREADS OF HIGH‐COUPON TREASURIES
3.7 UNCHANGED RATE SCENARIOS FOR P&L ATTRIBUTION
3.8 P&L ATTRIBUTION
NOTES
CHAPTER 4: DV01, Duration, and Convexity
4.1 PRICE–RATE CURVES
4.2 DV01
4.3 HEDGING A CENTURY BOND: PART I
4.4 DURATION
4.5 CONVEXITY
4.6 HEDGING A CENTURY BOND: PART II
4.7 YIELD‐BASED DV01, DURATION, AND CONVEXITY
4.8 THE BARBELL VERSUS THE BULLET
NOTES
CHAPTER 5: Key‐Rate, Partial, and Forward‐Bucket '01s and Durations
5.1 KEY RATES: MOTIVATION
5.2 KEY RATES: OVERVIEW
5.3 KEY RATES: SHIFTS
5.4 KEY RATES: '01S, DURATIONS, AND HEDGING
5.5 PARTIAL '01S AND PV01
5.6 FORWARD‐BUCKET '01S
5.7 MULTI‐FACTOR EXPOSURES AND PORTFOLIO VOLATILITY
NOTES
CHAPTER 6: Regression Hedging and Principal Component Analysis
6.1 SINGLE‐VARIABLE REGRESSION HEDGING
6.2 TWO‐VARIABLE REGRESSION HEDGING
6.3 LEVEL VERSUS CHANGE REGRESSIONS
6.4 REVERSE REGRESSIONS
6.5 PRINCIPAL COMPONENT ANALYSIS
NOTES
CHAPTER 7: Arbitrage Pricing with Term Structure Models
7.1 RATE AND PRICE TREES
7.2 ARBITRAGE PRICING OF DERIVATIVES
7.3 RISK‐NEUTRAL PRICING
7.4 ARBITRAGE PRICING IN A MULTI‐PERIOD SETTING
7.5 PRICING A CONSTANT‐MATURITY TREASURY SWAP
7.6 OPTION‐ADJUSTED SPREAD
7.7 PROFIT AND LOSS ATTRIBUTION WITH AN OAS
7.8 REDUCING THE TIME STEP
7.9 FIXED INCOME VERSUS EQUITY DERIVATIVES
NOTE
CHAPTER 8: Expectations, Risk Premium, Convexity, and the Shape of the Term Structure
8.1 EXPECTATIONS
8.2 VOLATILITY AND CONVEXITY
8.3 AN ANALYTICAL DECOMPOSITION OF FORWARD RATES
NOTE
CHAPTER 9: The Vasicek and Gauss+ Models
9.1 THE VASICEK MODEL
9.2 THE GAUSS+ MODEL
9.3 A PRACTICAL ESTIMATION METHOD
9.4 RELATIVE VALUE AND MACRO‐STYLE TRADING WITH THE GAUSS+ MODEL
NOTES
CHAPTER 10: Repurchase Agreements and Financing
10.1 REPURCHASE AGREEMENTS
10.2 USES OF REPURCHASE AGREEMENTS
10.3 MARKET STRUCTURE AND SIZE
10.4 SOFR
10.5 GC AND SPECIAL REPO RATES
10.6 LIQUIDITY MANAGEMENT AND CURRENT REGULATORY ISSUES
10.7 CASE STUDY: MF GLOBAL'S REPO‐TO‐MATURITY TRADES
NOTES
CHAPTER 11: Note and Bond Futures
11.1 FORWARD CONTRACTS AND FORWARD PRICES
11.2 FORWARD BOND YIELD
11.3 THE INTEREST RATE SENSITIVITY OF A FORWARD CONTRACT
11.4 MECHANICS OF US TREASURY NOTE AND BOND FUTURES
11.5 PRICING AND HEDGING IMPLICATIONS OF DAILY SETTLEMENT
11.6 COST OF DELIVERY AND THE FINAL SETTLEMENT PRICE
11.7 MOTIVATIONS FOR A DELIVERY BASKET AND CONVERSION FACTORS
11.8 THE QUALITY OPTION AT EXPIRATION
11.9 GROSS AND NET BASIS AND BASIS TRADES
11.10 IMPLIED REPO RATES
11.11 FUTURES PRICE AND THE QUALITY OPTION BEFORE EXPIRATION
11.12 THE TIMING, END‐OF‐MONTH, AND WILD‐CARD OPTIONS
11.13 CASE STUDY: BASIS TRADES IN MARCH 2020
NOTES
CHAPTER 12: Short‐Term Rates and Their Derivatives
12.1 SHORT‐TERM RATES AND THE TRANSITION FROM LIBOR
12.2 ONE‐MONTH SOFR FUTURES
12.3 FED FUND FUTURES
12.4 THREE‐MONTH SOFR FUTURES
12.5 EURIBOR FORWARD RATE AGREEMENTS AND FUTURES
12.6 THE FUTURES‐FORWARD DIFFERENCE
NOTES
CHAPTER 13: Interest Rate Swaps
13.1 MARKET SIZE AND PARTICIPANTS
13.2 IRS CASH FLOWS AND ANALYTICS
13.3 USES OF INTEREST RATE SWAPS
13.4 COUNTERPARTY CREDIT RISK
13.5 CLEARING AND CENTRAL COUNTERPARTIES
13.6 BASIS SWAPS
NOTES
CHAPTER 14: Corporate Debt and Credit Default Swaps
14.1 CORPORATE BONDS AND LOANS
14.2 DEFAULT RATES, RECOVERY RATES, AND CREDIT LOSSES
14.3 CREDIT SPREADS
14.4 CREDIT RISK PREMIUM
14.5 CREDIT DEFAULT SWAPS
14.6 CDS UPFRONT AMOUNTS
14.7 CDS‐EQUIVALENT BOND SPREAD
14.8 CDS‐BOND BASIS
14.9 HAZARD‐ADJUSTED DURATION AND DV01
14.10 SPREAD DURATION AND DV01
14.11 CDS SETTLEMENT AUCTIONS
14.12 OPPORTUNISTIC CDS STRATEGIES
14.13 CASE STUDY: THE LONDON WHALE
NOTES
CHAPTER 15: Mortgages and Mortgage‐Backed Securities
15.1 THE MORTGAGE MARKET IN THE UNITED STATES
15.2 FIXED‐RATE MORTGAGE LOANS
15.3 ADJUSTABLE‐RATE MORTGAGES
15.4 PREPAYMENTS
15.5 MORTGAGE POOLS
15.6 PREPAYMENT MODELING
15.7 MORTGAGE PRICING, SPREADS, AND DURATION
15.8 TBA AND SPECIFIED POOLS MARKETS
15.9 RISK FACTORS AND HEDGING AGENCY MBS
15.10 DOLLAR ROLLS
15.11 OTHER MBS
15.12 CREDIT RISK TRANSFER SECURITIES
NOTES
CHAPTER 16: Fixed Income Options
16.1 EMBEDDED BOND CALL OPTIONS
16.2 EURIBOR FUTURES OPTIONS
16.3 BOND FUTURES OPTIONS
16.4 CAPS AND FLOORS
16.5 SWAPTIONS
16.6 SWAPTION SKEW
NOTES
APPENDIX TO CHAPTER 1: Prices, Discount Factors, and Arbitrage
A1.1 DERIVING REPLICATING PORTFOLIOS
A1.2 THE EQUIVALENCE OF DISCOUNTING AND ARBITRAGE PRICING
APPENDIX TO CHAPTER 2: Swap, Spot, and Forward Rates
A2.1 CONTINUOUS COMPOUNDING
A2.2 RELATIONSHIPS BETWEEN SWAP OR PAR, SPOT, AND FORWARD RATES
APPENDIX TO CHAPTER 3: Returns, Yields, Spreads, and P&L Attribution
A3.1 YIELD TO MATURITY FOR SETTLEMENT DATES OTHER THAN COUPON PAYMENT DATES
A3.2 YIELD TO MATURITY AND
EX‐POST
RETURNS
A3.3 REALIZED FORWARD SCENARIO
APPENDIX TO CHAPTER 4: DV01, Duration, and Convexity
A4.1 DV01, DURATION, AND CONVEXITY OF PORTFOLIOS
A4.2 ESTIMATING PRICE CHANGE WITH DURATION AND CONVEXITY
APPENDIX TO CHAPTER 6: Regression Hedging and Principal Component Analysis
A6.1 REGRESSION HEDGES AND P&L VARIANCE
A6.2 CONSTRUCTION OF PRINCIPAL COMPONENTS
A6.3 CONSTRUCTION OF PC: MATHEMATICAL DETAILS
NOTE
APPENDIX TO CHAPTER 8: Expectations, Risk Premium, Convexity and the Shape of the Term Structure
NOTE
APPENDIX TO CHAPTER 9: The Vasicek and Gauss+ Models
A9.1 THE VASICEK MODEL IN A BINOMIAL TREE
A9.2 THE GAUSS+ MODEL
NOTES
APPENDIX TO CHAPTER 11: Note and Bond Futures
A11.1 FORWARD DROP APPROXIMATELY EQUALS CASH CARRY
A11.2 FORWARD VERSUS FUTURES PRICES IN A TERM STRUCTURE MODEL
A11.3 THE FUTURES‐FORWARD DIFFERENCE
A11.4 FUTURES DELIVERY OPTIONS IN A TERM STRUCTURE MODEL
APPENDIX TO CHAPTER 12: Short‐Term Rates and Their Derivatives
APPENDIX TO CHAPTER 13: Interest Rate Swaps
A13.1 PRICING A EURIBOR SWAP AS OF FEBRUARY 24, 2022
A13.2 TWO‐CURVE PRICING
APPENDIX TO CHAPTER 14: Corporate Debt and Credit Default Swaps
A14.1 CUMULATIVE DEFAULT AND SURVIVAL RATES
A14.2 UPFRONT AMOUNTS
A14.3 AN APPROXIMATION FOR CDS SPREADS
A14.4 CDS‐EQUIVALENT BOND SPREADS
A14.5 BOND SPREAD WITH MARKET RECOVERY
APPENDIX TO CHAPTER 15: Mortgages and Mortgage‐Backed Securities
A15.1 MONTH‐END BALANCES
A15.2 PRICING MBS WITH TERM STRUCTURE MODELS
NOTE
APPENDIX TO CHAPTER 16: Fixed Income Options
A16.1 THEORETICAL FOUNDATIONS FOR APPLYING BLACK‐SCHOLES‐MERTON (BSM) TO SELECTED FIXED INCOME OPTIONS
A16.2 NUMERAIRES, PRICING MEASURES, AND THE MARTINGALE PROPERTY
A16.3 CHOOSING THE NUMERAIRE AND BSM PRICING
A16.4 EXPECTATIONS FOR BLACK‐SCHOLES‐MERTON STYLE OPTION PRICING
A16.5 FUTURES PRICES ARE MARTINGALES WITH THE MONEY MARKET ACCOUNT AS A NUMERAIRE
About the Website
Index
End User License Agreement
List of Tables
Chapter 0
TABLE 0.1 Notional Amounts of Interest Rate Derivatives. Swaps, Options, and...
TABLE 0.2 US Treasury Auction Schedule, as of January 2022.
TABLE 0.3 Financial Assets and Liabilities of Households, as of June 2021. A...
TABLE 0.4 Balance Sheet of the Federal Reserve Banks, December 31, 2007, in ...
TABLE 0.5 Average Daily Volumes (ADV) of Trading in Selected Markets, Fourth...
Chapter 1
TABLE 1.1 Cash Flows of $1 Million Face Amount of the 2.5s of 05/15/2024. En...
TABLE 1.2 Prices of Selected US Treasury Bonds Maturing on November 15 or Ma...
TABLE 1.3 Discount Factors Derived from Bonds Listed in Table 1.2.
TABLE 1.4 Treasury Bond Prices Versus Present Values Using the Discount Fact...
TABLE 1.5 An Arbitrage Trade: Selling the 7.625s of 11/15/2022 and Buying a ...
TABLE 1.6 STRIPS Created from $1 Million Face Amount of the 0.625s of 05/15/...
TABLE 1.7 Prices of STRIPS Maturing on May 15, 2030, as of May 14, 2021.
Chapter 2
TABLE 2.1 Swap Rates, Spot Rates, and Forward Rates Implied by USD SOFR Swap...
TABLE 2.2 Days from Settlement or Previous Payment Date for SOFR Swaps Settl...
Chapter 3
TABLE 3.1 Prices and Yields of Two‐Year Bonds When the One‐ and Two‐Year Spo...
TABLE 3.2 Yields of Selected US Treasury Bonds Maturing Between May 15, 2040...
TABLE 3.3 Spreads of Selected US Treasury Bonds to Benchmark Treasuries and ...
TABLE 3.4 Realized Term Structure of Treasury Forward Rates on Various Dates...
TABLE 3.5 Return on a
‐Year Zero Coupon Bond Under the Scenarios of Realize...
TABLE 3.6 Data for the P&L Attribution of the 7.625s of 11/15/2022 from Nove...
TABLE 3.7 Term Structures of Forward Rates for the P&L Attribution of the 7....
TABLE 3.8 P&L Attribution of the 7.625s of 11/15/2022 from November 13, 2020...
Chapter 4
TABLE 4.1 Selected Bonds with Indicative Levels as of Mid‐May 2021. Spreads ...
TABLE 4.2 Calculating DV01 for Bonds in Table 4.1, as of Mid‐May 2021.
TABLE 4.3 Calculating Duration for Bonds in Table 4.1, as of Mid‐May 2021.
TABLE 4.4 Calculating Convexity for Bonds in Table 4.1, as of Mid‐May 2021. ...
TABLE 4.5 Calculating the Yield‐Based DV01 and Duration of the Treasury 1.62...
TABLE 4.6 Selected Johnson & Johnson Bond Issues. Yields, Durations, and Con...
TABLE 4.7 Selected Portfolios of JNJ Bonds Listed in Table 4.6 That Match th...
Chapter 5
TABLE 5.1 Key‐Rate Durations of JPMorgan Government Bond Fund and Its Benchm...
TABLE 5.2 Key‐Rate DV01s and Hedging of the Pension Liabilities in Figure 4....
TABLE 5.3 Key‐Rate DV01s and Hedging of the Pension Liabilities in Figure 4....
TABLE 5.4 Selected General Obligation Refunding Bonds Issued by the Town of ...
TABLE 5.5 Forward‐Bucket Exposures and Hedging of Selected Town of Wellesley...
Chapter 6
TABLE 6.1 Yields and Yield‐Based DV01s for the JNJ 2.450s of 09/01/2060 and ...
TABLE 6.2 Regression of Daily Changes in Yields of the JNJ 2.450s of 09/01/2...
TABLE 6.3 Regression of Daily Changes in Yields of the Treasury 1.375s of 11...
TABLE 6.4 Regression: Daily Changes in Yields of the JNJ 2.450s of 09/01/206...
TABLE 6.5 Principal Component Analysis of USD LIBOR Swap Rates from June 1, ...
TABLE 6.6 USD LIBOR Par Swap Rates and DV01s, as of July 16, 2021, and PC El...
Chapter 8
TABLE 8.1 Prices of Zero Coupon Bonds and Their Associated Forward Rates fro...
Chapter 9
TABLE 9.1 Estimated Parameters of the Gauss+ Model from US Treasury Zero Cou...
Chapter 10
TABLE 10.1 Structure of the US Repo Market, as of July 2021, in $Billions.
TABLE 10.2 Collateral Composition of Tri‐Party Repo (ex‐GCF), as of July 202...
TABLE 10.3 Median Tri‐Party Repo Haircuts (ex‐GCF), as of July 2021. Haircut...
TABLE 10.4 SOFR and Treasury Repo Rates, as of May 14, 2021. Rates Are in Ba...
TABLE 10.5 Percentiles of Daily Spreads of the Federal Funds Effective Rate ...
TABLE 10.6 Treasury Special Spreads, as of May 27, 2021. Entries Are in Basi...
TABLE 10.7 European Short‐Term Government Bond Rates, as of December 2010. R...
TABLE 10.8 MF Global Repo‐to‐Maturity Positions and Margin.
Chapter 11
TABLE 11.1 A Forward Contract on the US Treasury 2.875s of 05/15/2028.
TABLE 11.2 A Forward Contract on the US Treasury 1.125s of 02/15/2031.
TABLE 11.3 Spot and Forward Yields for the US Treasury 2.875s of 05/15/2028 ...
TABLE 11.4 DV01 Metrics for the Forward Prices of the US Treasury 2.875s of ...
TABLE 11.5 The Deliverable Basket into TYU1.
TABLE 11.6 Settlement Prices of TYU1, from May 10, 2021, to May 28, 2021, an...
TABLE 11.7 Prices of TYU1 and Notes in Its Deliverable Basket as of the Last...
TABLE 11.8 Gross and Net Basis of Deliverable Notes into TYU1 as of May 14, ...
TABLE 11.9 A $1 Billion Long TYM0 CTD Basis Trade, from March 6, 2020, to Ma...
Chapter 12
TABLE 12.1 Global Market Short‐Term Interest Rates, Pre‐ and Post‐ the Trans...
TABLE 12.2 Selected One‐Month SOFR Futures Contracts, as of January 14, 2022...
TABLE 12.3 Hedging a $50 Million Overnight Repo Investment with 9.33 One‐Mon...
TABLE 12.4 Hedging a $50 Million Overnight Repo Investment with 10.33 One‐Mo...
TABLE 12.5 Two Hedging Strategies for a $50 Million Overnight Repo Investmen...
TABLE 12.6 Prices and Rates of Selected Fed Funds Futures Contracts, as of O...
TABLE 12.7 Selected Three‐Month SOFR Futures Contracts, as of January 14, 20...
TABLE 12.8 Hedging the Interest Cost of Borrowing $10 Million from June 15, ...
TABLE 12.9 A €10 Million Euribor Forward Rate Agreement from June 15, 2022, ...
TABLE 12.10 Selected Three‐Month Euribor Futures Contracts, as of January 14...
TABLE 12.11 Hedging the Interest Cost of Borrowing €10 Million from June 15,...
TABLE 12.12 The Futures‐Forward Rate Difference for Selected Contracts in a ...
Chapter 13
TABLE 13.1 Entity‐Netted Notionals (ENNs) of Interest Rate Swaps, US Reporti...
TABLE 13.2 Debt Is Sold at 1.5% over the Swap Rate. Hedge Future Debt Issuan...
Chapter 14
TABLE 14.1 Long‐Term Debt Ratings Classifications. The Ratings in Each Entry...
TABLE 14.2 Tranches of Apidos CLO XXXI, May 2019. All Tranches Mature in Apr...
TABLE 14.3 Call Provision of the Hertz 6s of 01/15/2028. The Bond Was Issued...
TABLE 14.4 Average Five‐Year Default Rates, Senior Unsecured Bond Recovery R...
TABLE 14.5 Hertz Corporation, Selected Bond Prices on Three Dates in 2020.
TABLE 14.6 Average One‐Year Transition Rates, 1981–2020. All Entries Are in ...
TABLE 14.7 Selected Credit Spreads for the Genworth 4.90s of 08/15/2023, as ...
TABLE 14.8 Median Ratios of Premium to Credit Spread and to Expected Loss by...
TABLE 14.9 Selected Sovereign and Corporate Five‐Year CDS Spreads, as of Nov...
TABLE 14.10 Calculating the Upfront Amount for 100 Notional Amount of an Ann...
TABLE 14.11 Calculating the Expected Discounted Value of 100 Face Amount of ...
TABLE 14.12 A Simplified Arbitrage Relationship Between Selling Protection o...
TABLE 14.13 List of Deliverables for Hertz Corporation CDS Auction, June 23,...
TABLE 14.14 Dealer Initial Markets, Hertz Corporation CDS Auction, June 24, ...
TABLE 14.15 Physical Settlement Requests, Hertz Corporation CDS Auction, Jun...
TABLE 14.16 Goldman Sachs Limit Orders, Hertz Corporation CDS Auction, June ...
TABLE 14.17 Names Dropped from CDX.NA.IG.9, as of April 2012. Index Loss in ...
TABLE 14.18 Structure of Tranches on CDX.NA.IG.9, as of April 2012. Attachme...
TABLE 14.19 Pricing of Tranches on CDX.NA.IG.9 Maturing in December 2017, as...
Chapter 15
TABLE 15.1 First‐Lien Mortgages, Gross Issuance, in $Trillions.
TABLE 15.2 Residential Mortgages Outstanding (1–4 Family), as of September 2...
TABLE 15.3 Average Characteristics of First‐Time Homebuyer Purchase Loans, a...
TABLE 15.4 Selected Rows of a Mortgage Amortization Table for a 30‐Year $100...
TABLE 15.5 Descriptive Statistics for Three 30‐Year FNMA Pools, as of Decemb...
TABLE 15.6 Bid Prices for UMBS 30‐Year TBAs as of December 30, 2021.
TABLE 15.7 Representative Pay‐ups for Selected Specific UMBS 30‐Year Pools, ...
TABLE 15.8 Connecticut Avenue Securities (CAS) 2020‐R01, Issued in January 2...
Chapter 16
TABLE 16.1 Callable Bank of America Bond and Two Reference Noncallable Bonds...
TABLE 16.2 Pricing the Embedded Call Option of the Bank of America 2.305s of...
TABLE 16.3 A 100.25 Call on September 2022 Three‐Month Euribor Futures, as o...
TABLE 16.4 A Call Option on the June 10‐Year Treasury Note Futures Contract,...
TABLE 16.5 Pricing a Caplet with a LIBOR Reset on February 14, 2022, and a P...
TABLE 16.6 The Structure and Pricing of a One‐Year Cap as of May 14, 2021. R...
TABLE 16.7 A 5y5y Receiver Swaption per 100 Notional Amount of Swaps, as of ...
TABLE 16.8 USD ATM Swaption Normal Volatilities in Basis Points, as of May 1...
Appendix to Chapter 6
TABLE A6.1 Principal Components of USD LIBOR Swap Rates, from June 1, 2020, ...
Appendix to Chapter 13
TABLE A13.1 €STR OIS Rates as of February 24, 2022.
Appendix to Chapter 16
TABLE A16.1 Example of the Calculation of a Normalized Gains Process
List of Illustrations
Chapter 0
FIGURE 0.1 Global Debt Securities Outstanding, by Residence of Issuer, as of...
FIGURE 0.2 Global Debt Securities Outstanding, by Sector, as of March 2021....
FIGURE 0.3 Credit Default Swaps, Notional Amounts Outstanding, by Sector and...
FIGURE 0.4 Debt Securities and Loans in the United States, Amounts Outstandi...
FIGURE 0.5 US Treasury Obligations, Amounts Outstanding, as of June 2021....
FIGURE 0.6 Financial Assets of Various Sectors, as of June 2021. ETF: Exchan...
FIGURE 0.7 Financial Liabilities of Various Sectors, as of June 2021. B/D: B...
FIGURE 0.8 Balances of Consumer Credit Sectors.
FIGURE 0.9 Delinquencies in Consumer Credit Sectors.
FIGURE 0.10 Nonfinancial Business Liabilities, Corporate and Noncorporate, a...
FIGURE 0.11 Assets of Commercial Banks, Largest 25 Banks and All Other Banks...
FIGURE 0.12 Balances in Money Market Funds, by Sector.
FIGURE 0.13 Assets of Federal Reserve Banks, by Instrument.
FIGURE 0.14 Liabilities of Federal Reserve Banks, by Instrument.
FIGURE 0.15 Consolidated Balance Sheet of the Eurosystem, Assets.
FIGURE 0.16 Assets of the Bank of Japan.
FIGURE 0.17 10‐Year Treasury Note Auction Size and Allotment to Dealers.
FIGURE 0.18 Primary Dealer Net Holdings of Corporate Bonds and Corporate Bon...
FIGURE 0.19 Percentages of Trading Volume in the Interdealer Broker Markets ...
FIGURE 0.20 Exchange‐Traded Fund AUM and ADV as a Percentage of Market AUM a...
Chapter 1
FIGURE 1.1 Discount Factors Derived from Selected US Treasury Bonds, as of M...
FIGURE 1.2 Prices of US Treasury C‐STRIPS and P‐STRIPS, as of May 14, 2021....
FIGURE 1.3 Timeline for Computing the Accrued Interest on the 0.625s of 08/1...
FIGURE 1.4 Full and Flat Prices for the 0.625s of 08/15/2030, Assuming Const...
Chapter 2
FIGURE 2.1 A SOFR Swap.
FIGURE 2.2 Term Structures in Different Currencies, as of May 14, 2021.
FIGURE 2.3 SOFR Rate Curves, as of May 14, 2021.
FIGURE 2.4 SARON Rate Curves, as of May 14, 2021.
Chapter 3
FIGURE 3.1 Prices of Bonds with Different Coupons and Maturities. All Yields...
FIGURE 3.2 Yields of US Treasury Bonds, as of May 14, 2021.
FIGURE 3.3 Yields of US Treasury Bonds Maturing in Less than 10 Years, as of...
FIGURE 3.4 Spreads of Selected US Treasury Bonds to Benchmark Treasuries and...
FIGURE 3.5 Benchmark Treasury and SOFR Forward Rate Curves, as of May 14, 20...
Chapter 4
FIGURE 4.1 Sample Shifts to HQM Par Rates.
FIGURE 4.2 Price–Rate Curves for the Bonds in Table 4.1, as of Mid‐May 2021....
FIGURE 4.3 Tangent Lines to the Price–Rate Curve of the NSC 4.10s of 05/15/2...
FIGURE 4.4 DV01s of the Treasury 1.625s of 11/15/2050 and of the Treasury 1....
FIGURE 4.5 Price–Rate Curve of the NSC 4.10s of 05/15/2121, as of Mid‐May 20...
FIGURE 4.6 P&L of a Long Position of $100 Million Face Amount of the NSC 4.1...
FIGURE 4.7 Yield‐Based Duration for Bonds with Coupons of 0%, 2%, and 5%. Yi...
FIGURE 4.8 Yield‐Based DV01 for Bonds with Coupons of 0%, 2%, and 5%. Yield ...
FIGURE 4.9 Duration of Par Bonds, with Yields Equal to 0.5%, 2%, and 5%.
FIGURE 4.10 Liabilities of a Stylized Defined‐Benefit Pension Fund. Present ...
FIGURE 4.11 P&L of the Pension Fund Liabilities in Figure 4.10 and of a Port...
FIGURE 4.12 Net P&L of the Pension Fund Liabilities in Figure 4.10 and the A...
FIGURE 4.13 Yields of the Johnson & Johnson Bonds in Table 4.6 Against Their...
Chapter 5
FIGURE 5.1 Changes in the Term Structure of On‐the‐Run US Treasury Yields, S...
FIGURE 5.2 Key Rate Shifts with Four Key Rates at Terms of 10, 20, 30, and 4...
FIGURE 5.3 The HQM Par Rate Curve, as of May 2021, with and Without a 20‐Yea...
FIGURE 5.4 Town of Wellesley General Obligation Forward Rate Curve with a 10...
Chapter 6
FIGURE 6.1 Regression of Daily Changes in Yields of the JNJ 2.450s of 09/01/...
FIGURE 6.2 Yield Changes of the JNJ 2.450s of 09/01/2060 and the Treasury 1....
FIGURE 6.3 Residuals Using the Regression Coefficients in Table 6.3, in‐Samp...
FIGURE 6.4 The First Three Principal Components of USD LIBOR Swap Rates, Est...
FIGURE 6.5 The First Three Principal Components of GBP LIBOR Swap Rates, Est...
FIGURE 6.6 The First Three Principal Components of Euribor Swap Rates, Estim...
Chapter 7
FIGURE 7.1 Pricing Six‐Month and One‐Year Zero Coupon Bonds with a Binomial ...
FIGURE 7.2 Pricing a 990 Six‐Month Call Option on a Six‐Month Zero Coupon Bo...
FIGURE 7.3 A Recombining Binomial Rate Tree.
FIGURE 7.4 Price Tree for a 1.5‐Year Zero Coupon Bond.
FIGURE 7.5 Price Tree for a 1.5‐Year Zero Coupon Bond, with Probabilities.
FIGURE 7.6 Risk‐Neutral Process for the Six‐Month Rate.
FIGURE 7.7 Final Price Tree for a 1.5‐Year Zero Coupon Bond, with Probabilit...
FIGURE 7.8 Price Tree for a Stylized CMT Swap.
Chapter 8
FIGURE 8.1 Binomial Rate Tree and Price Trees for Two‐ and Three‐Year Zero C...
FIGURE 8.2 An Illustration of Jensen's Inequality as Applied to Bond Pricing...
Chapter 9
FIGURE 9.1 Expectations of the Continuously Compounded Short‐Term Rate in th...
FIGURE 9.2 Continuously Compounded Forward and Spot Rates in the Vasicek Mod...
FIGURE 9.3 Term Structure of Forward Rate Volatilities in the Vasicek Model....
FIGURE 9.4 Decomposition of the Forward Rates in the Vasicek Model into Expe...
FIGURE 9.5 Coefficients of Regressing Zero Coupon Bond Yields of Various Ter...
FIGURE 9.6 Yield Volatility in Annual Basis Points, from Empirical Analysis ...
FIGURE 9.7 Changes in Forward Rates Relative to Changes in the Short‐Rate, t...
FIGURE 9.8 The Two‐Year Forward Rate and Gauss+ Factors Extracted from Daily...
FIGURE 9.9 Difference Between the Nine‐ and Five‐Year Signals. Each Signal I...
FIGURE 9.10 Estimated Risk Premium on the 10‐Year Forward Rate.
FIGURE 9.11 Long‐Run Expectations of the Short‐Term Rate, as Implied by Gaus...
Chapter 10
FIGURE 10.1 Initiation of a Repurchase Agreement.
FIGURE 10.2 Unwind of a Repurchase Agreement.
FIGURE 10.3 Long Financing.
FIGURE 10.4 Roll of a Repurchase Agreement.
FIGURE 10.5 Short Financing.
FIGURE 10.6 Collateral Swap.
FIGURE 10.7 US Repo Market as Assets and Liabilities, by Sector, as of March...
FIGURE 10.8 Daily Spreads of the Federal Funds Effective Rate over the Gener...
FIGURE 10.9 On‐the‐Run 10‐Year Treasury Special Spread.
FIGURE 10.10 Average 10‐Year Treasury Special Spread over the Auction Cycle,...
FIGURE 10.11 MF Global Repo‐to‐Maturity Positions and Margin.
Chapter 11
FIGURE 11.1 Percent of Total DV01 Traded in US Treasury Bonds and in US Trea...
FIGURE 11.2 A Forward Contract on the US Treasury 2.875s of 05/15/2028.
FIGURE 11.3 A Forward Contract on the US Treasury 1.125s of 02/15/2031.
FIGURE 11.4 Spot Yields, Repo Rates, and Forward Yields.
FIGURE 11.5 Quality Option for TYU1 with a Flat Term Structure of Yields, as...
FIGURE 11.6 TYU1 Price with Two Deliverable Bonds, as of May 14, 2021. Yield...
FIGURE 11.7 Net Basis of Three Bonds Deliverable into TYU1, as of May 14, 20...
FIGURE 11.8 DV01 of TYU1 and the DV01s of Two Deliverable Bonds Divided by T...
FIGURE 11.9 Yields of CTD Bonds into TYM0, FVM0, and TUM0, from February 3, ...
FIGURE 11.10 Net and Gross Basis of CTD into TYM0, from February 3, 2020, to...
FIGURE 11.11 Implied Repo Rates of CTD Bonds into TYM0, FVM0, TUM0, and SOFR...
FIGURE 11.12 Richness of CTD Bonds into TYM0, FVM0, and TUM0 Relative to Com...
FIGURE 11.13 SOFR and 1st and 99th Percentile Repo Rates, from February 3, 2...
Chapter 12
FIGURE 12.1 Examples of Monthly Interest Payment Conventions for a $1 Millio...
FIGURE 12.2 Fed Funds Effective Rate and Target Range, January 2010 to Janua...
FIGURE 12.3 Implied 2022 fed funds Effective Rates from Fed Fund Futures, as...
FIGURE 12.4 A Term Structure of Weekly Interest Rates from Fed Fund Futures,...
FIGURE 12.5 A Comparison of the June 2022 Euribor and the June 2022 SOFR Fut...
Chapter 13
FIGURE 13.1 Receiving Fixed at 1.64% on a $100 Million Three‐Year SOFR Swap....
FIGURE 13.2 Receiving Fixed at 0.36% on a €100 Million Three‐Year Fixed vers...
FIGURE 13.3 A Three‐Year Swap, One‐Year Forward, with Annual Interest Paymen...
FIGURE 13.4 Facilitating a Bank Loan with an Interest Rate Swap.
FIGURE 13.5 Synthetic Issue of Floating‐Rate Debt.
FIGURE 13.6 Bilateral versus Cleared Swaps.
FIGURE 13.7 Example of a CCP Default Waterfall. Steps Are Not Drawn to Scale...
FIGURE 13.8 Hedging Basis Risk with an €STR versus Three‐Month Euribor Basis...
Chapter 14
FIGURE 14.1 Credit Losses for Senior Unsecured Bonds, 1983–2020.
FIGURE 14.2 A Par‐Par Asset Swap with Financing.
FIGURE 14.3 A Market Value Asset Swap with Financing.
FIGURE 14.4 iTraxx Europe 10‐Year CDS Indexes.
FIGURE 14.5 iTraxx Europe 10‐Year versus Three‐Year Crossover CDS Indexes.
FIGURE 14.6 CDS‐Bond Basis for French and Italian Sovereign Debt, January 20...
FIGURE 14.7 Conventional
Vs
. Hazard‐Adjusted Durations.
Chapter 15
FIGURE 15.1 Amortization of a 30‐Year $100,000 Mortgage at 4.5%.
FIGURE 15.2 Refinancing S‐Curves for Three Mortgage Pools.
FIGURE 15.3 One‐Month CPR for FN MA3538 and FN CA2797 and the 30‐Year Curren...
FIGURE 15.4 One‐Month CPR for FN AI4813 and the 30‐Year Current Coupon Rate....
FIGURE 15.5 Prices of FN CA2797 Versus the Five‐Year Treasury Rate, from Nov...
FIGURE 15.6 OAD for a FNMA 30‐Year Index and the Five‐Year Treasury Rate, De...
FIGURE 15.7 Dollar Roll Example, UMBS 30‐Year 2.5% Jan−Feb TBAs, as of Janua...
Chapter 16
FIGURE 16.1 Prices of the Banco Santander 2.28s of 02/28/2039, the Bank of A...
FIGURE 16.2 Implied Basis‐Point Volatilities of 2y2y and 5y10y US Dollar Swa...
Appendix to Chapter 9
FIGURE A9.1 Binomial Tree Setup for Three Dates of the Vasicek Model.
FIGURE A9.2 Binomial Tree Solution for Three Dates of the Vasicek Model.
Guide
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Fixed Income Securities
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