The one-day Fixed Income Master class is designed to deepen and extend the discussion of credit market-related topics introduced in the Fixed Income 101 class. Key topics and concepts introduced will be explored in greater detail. The goal is to provide both a greater insight into the operation of specific aspects of the debt securities markets as well as a more integrated understanding of how the various elements interact with one another.

Specific topics will include: Methods of debt issuance and redemption; Fed policy, yield curves and market pricing of credit; credit risk and how it’s measured, managed and insured against by market participants; a primer on bond math, market conventions regarding price and yield calculations (including day count conventions); and an introduction to duration convexity and their use in quantifying and managing interest rate risk.

ISSUANCE – ORIGINATION (CREATION) OF DEBT SECURITIES

 • Underwriting/Distribution of New Issue
    --Legal/regulatory considerations registered versus exempt offerings
    --Types of underwritings/distributions
    --Yield auctions
    --Issuers’ legal structure, investors’ claims
 • Pricing (Setting the Offering Yields) of New Issues
    --Yields and yield curves
    --Mechanics of pricing a new issue

MARKET PRICING OF CREDIT – THE TREASURY YIELD CURVE AND CREDIT
OR SECTOR SPREADS

 • Yield Curves
    --Yield curve fundamentals
    --Types of yield curves by security type
    --Yield curve construction methodologies
    --Shapes of yield curves
 • Yield Curves Theory and Practice
    --Interest rate levels and shape of the yield curve
    --Yield Curve Movements And The Real Economy
 • The Fed (Federal Reserve System) and Interest Rates
    --Structure of the Fed
    --Objectives of Fed monetary policy (report to congress)
    --Monetary policy tools
    --Fed funds rate target and open market operations
    --Quantitative easing and special programs

CREDIT RISK: MEASUREMENT, MITIGATION AND INVESTMENT
CONSIDERATIONS

 • Quantifying Credit (Default) Risk
    --Credit ratings
    --Spread to a risk-free or high quality interest rate
    --Credit Default Swap (CDS) spread
 • Credit Ratings
    --Credit rating agencies
    --Credit rating categories
    --Credit rating methodologies
 • Mitigation/Minimization of Credit Risk
    --Avoidance – (default) risk-free securities
    --Avoidance/minimization - Government Sponsored Enterprises (GSEs)
    --Minimization – insuring against credit risk – bond insurance
    --Minimization – insuring against credit events - CDS
 • Investment Characteristics of High Yield Securities (Junk Bonds)
    --Junk bonds/high yield securities
    --Brief history of the junk bond market
    --Risk and return characteristics

BOND PRICES AND YIELDS

 • Bond Quotations
    --Price quotes
    --Basis (yield) quotes
    --Bond quote conventions
 • Bond Prices
    --Present value of the cash flows to maturity (first call date)
    --Bond pricing examples
    --Bond pricing versus bond valuation
    --Bond Yields
    --Yield to maturity reconsidered

QUANTIFYING AND MANAGING INTEREST RATE (PRICE) RISK

 • Factors Determining Sensitivity of Price to Change in YTM
    --Non callable bonds
    --Callable bonds - embedded options
 • Quantifying Price Sensitivity to Changes In Market Yields
    --Modified duration
    --Effective duration
    --Dollar duration
    --Impact of convexity
 • Callable Bonds
    --Price behavior
    --Effective duration and convexity
 • Applications of duration
    --Portfolio management
    --Hedging

DEBT RETIREMENT – BOND REDEMPTIONS

 • Scheduled repayment of principal
    --Term loans and securities
    --Amortizing loans and securities
    --Serial bonds
    --Sinking fund bonds (sinkers)
 • Early Retirement Of Principal
    --Mandatory early retirement
    --Optional early retirement of principal
 • Other Debt Retirement-Related Issues
    --Refunding of maturing/called issues
    --Convertible bonds