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An Introduction to Bond Markets by Moorad Choudhry

An Introduction to Bond Markets
by Moorad Choudhry

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Product code: 22890
ISBN: 0470017589, ISBN13: 9780470017586, 432 pages, paperback
Published by Securities & Investment Institute and John Wiley & Sons in 2006 , 3rd Revised edition

Description of An Introduction to Bond Markets
This book describes and defines bonds within the context of the capital markets and the different types of bonds that are traded. It includes a detailed look at the analytical techniques used in the market by traders and fund managers. This new edition will update the section on swaps and risk management, update all exercises and examples, add a new section on credit derivatives, add a section on structured finance securities & add a section on trading. Contents also include: Bond yield Measurement, Interest Rate Risk, The UK gilt market and corporate debt markets, Risk Management, Off balance sheet instruments, including swaps and options, and Overseas and emerging markets.
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Contents of An Introduction to Bond Markets
Foreword Preface About the author 1. INTRODUCTION TO BONDS Description Outline of market participants Bond analysis Financial arithmetic: The time value of money Present value and discounting Discount factors Bond pricing and yield: The traditional approach Bond pricing Bond yield Accrued interest Clean and dirty bond prices Day-count conventions Illustrating bond yield using Excel spreadsheets Bibliography 2. THE YIELD CURVE, AND SPOT AND FORWARD YIELDS The yield curve Yield-to-maturity yield curve The par yield curve The zero-coupon (or spot) yield curve The forward yield curve Theories of the yield curve Spot rates Discount factors and the discount function Implied spot and forward rates Understanding forward rates The term structure of interest rates Bibliography 3. BOND INSTRUMENTS AND INTEREST-RATE RISK Duration, modified duration and convexity Duration Properties of Macaulay duration Modified duration Convexity Bibliography 4. REVIEW OF FLOATING-RATE NOTE BOND INSTRUMENTS Floating-rate notes Inverse floating-rate note Description Hedging the note Indexed amortising note Description Advantages to investors Synthetic convertible note Description Investor benefits Interest differential notes Example of IDN Benefits to investors Convertible Quanto Note Example of Japanese Equity Note Bibliography 5. THE MONEY MARKETS Introduction Securities quoted on a yield basis Money market deposits Certificates of deposit CD yields Securities quoted on a discount basis Treasury bills Banker's acceptances Eligible banker's acceptance Commercial paper Commercial paper programmes Commercial paper yields Money market screens on Bloomberg Repo Definition The classic repo Examples of classic repo The sell/buy-back Examples of sell/buy-back Repo collateral Legal treatment Margin Variation margin. 5.A Currencies using money market year base of 365 days 6. THE EUROBOND MARKET Eurobonds Foreign bonds Eurobond instruments Conventional bonds Floating rate notes Zero-coupon bonds Convertible bonds The issue process: market participants The borrowing parties The underwriting lead manager The co-lead manager Investors Fees, expenses and pricing Fees Expenses Pricing Issuing the bond The grey market Alternative issue procedures Covenants Trust services Depositary Paying agent Registrar Trustee Custodian Form of the bond Temporary global form Permanent global bond Definitive form Registered bonds Fiscal agent Listing agent Clearing systems Market associations International Capital Market Association Bloomberg screens Secondary market Settlement Bibliography 7. CONVERTIBLE BONDS, MTNs AND WARRANTS Description Analysis Value and premium issues Warrants Medium-term notes MTN programme Shelf registration Credit rating Secondary market Issuers and investors MTNs and corporate bonds 8. CREDIT RATINGS Credit ratings Purpose of credit ratings Formal credit ratings 9. INFLATION-LINKED BONDS Basic concepts Choice of index Indexation lag Coupon frequency Type of indexation Index-linked bond cash flows and yields TIPS cash flow calculations TIPS price and yield calculations Assessing yields on index-linked bonds Which to hold: indexed or conventional bonds? Bibliography 10. AN INTRODUCTION TO SECURITISED BONDS The concept of securitisation Reasons for undertaking securitisation Benefits of securitisation to investors The process of securitisation Securitisation process SPV structures Credit enhancement Impact on balance sheet Credit rating Redemption mechanism Average life Illustrating the process of securitisation Bloomberg screens Bibliography 11. INTRODUCTION TO DERIVATIVE INSTRUMENTS Interest-rate swaps Characteristics of IR swaps Swap spreads and the swap yield curv Swap duration Summary of IR swap Non-standard swaps Using swaps Cancelling a swap Zero-coupon swap pricing Hedging using bonds and swaps Swaptions Cross-currency swaps Bloomberg screens Futures contracts Description Bond futures contracts Futures pricing Arbitrage-free futures pricing Hedging using futures The hedge ratio Interest-rate options Introduction Definition Option terminology Option premium Pricing options Behaviour of option prices Using options in bond markets Hedging using bond options Exotic options Bibliography 12. INTRODUCTION TO CREDIT DERIVATIVES Introduction Why use credit derivatives? Classification of credit derivative instruments Definition of a credit event Asset swaps Credit default swaps Credit-linked notes Total return swaps Synthetic repo Reduction in credit risk Capital structure arbitrage The TRS as a funding instrument Credit options General applications of credit derivatives Use of credit derivatives by portfolio managers Supply and demand and the credit default swap basis A negative basis Supply and demand CDS mechanics Bibliography 13. APPROACHES TO GOVERNMENT BOND TRADING AND YIELD ANALYSIS Introduction The determinants of yield Spread trade risk weighting Identifying yield spread trades Coupon spreads Butterfly trades Basic concepts Putting on the trade Yield gain Convexity gain Bloomberg screens Bibliography 14. RISK MANAGEMENT Characterising risk Risk management The risk management function Interest-rate risk Value-at-Risk Definition Calculation methods Validity of the variance-covariance (correlation) VaR estimate Assessment of VaR tool VaR Methodology for credit risk Modelling VaR for credit risk Time horizon Applications of credit VaR Bibliography Glossary List of abbreviations Index
About Moorad Choudhry
Dr Moorad Choudhry is Head of Treasury at KBC Financial Products in London. He is a Visiting Professor at the Department of Economics, London Metropolitan University, a Visiting Research Fellow at the ICMA Centre, University of Reading, a Senior Fellow at the Department of Mathematical Trading and Finance, Cass Business School, and a Fellow of the Securities and Investment Institute.

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