Fixed Income, Rates and Credit

Learning Outcomes

  • Overview understanding to the debt markets
  • Understand debt market products
  • Understand market rates and money markets
  • Bond Issuance Case Study
  • Understand bond pricing and sensitivity
  • Credit Rating Case Study
  • Bond Trading
  • Securitization

Discourse

This course will cover the breadth of Money and Capital Market Instruments. We will start off with an introduction to the debt markets and will go through the debt market products, namely: money market instruments, loans, and bonds. We will continue with covering issuance through to trading and refinancing. There will be an extensive case study covering all aspects of bond creation and issuance. Although the delegates may not be working on desks, issue bonds, understanding the mechanics, motivations, challenges and options involved ensure the greatest depth of understanding of all bond related factors. It will conclude with teams presenting their bond issue to the “client” to win the mandate. There will also be a case study on Credit Rating which will include through analysis and comparison of an import of raw data on a company to derive an accurate credit rating for the company. We will finish with a trading simulation and new fixed income assets will be added to the program-wide trading simulation. We build practical models in Excel and Python ensuring that the classroom learning translates into practical desk skills.

Program Overview

Debt market product overview
  • Money market instruments
  • Loans
  • Bonds
Debt market products
  • Debt market sectors
  • Analysing debt market data from online sources
  • Debt market participants
Market rates
  • Building on and applying the financial maths knowledge to understand different interest rates and conventions including:
  • Effective and nominal rates
  • Spot and forward rates
  • Day count conventions
  • Benchmark rates such as LIBOR and OIS rates
Money markets
  • Introducing money markets and instruments g.:
  • Treasury bills
  • Certificates of deposit (CDs)
  • Commercial paper
  • Repos (briefly as covered elsewhere)
Bond issuance – Case study
  • An extensive case study covering all aspects of bond creation and issuance
Bond pricing and sensitivity

An Excel based session building a full pricing and sensitivity model to demonstrate valuation, price impactors, duration and convexity.

  • Market rates
  • Calculate present and future values using interest rates at different compounding frequencies
  • Calculate the effective annual rate that corresponds to a given nominal interest rate, and vice versa
  • Know the definition of a forward interest rate
  • Understand the difference between spot and forward interest rates
  • Calculate the implied forward rate that corresponds to given spot interest rates at different compounding frequencies

Case study – Credit rating

This Excel based case study will require delegates to import raw data on a company and its peers. Through analysis and comparison, they will derive an accurate credit rating for the company.

  • Know the factors on which credit risk depends
  • Understand the relationship between credit spreads and expected loss
  • Know the main benchmarks relative to which credit spreads are measured
  • Know the main credit spread measures that are used in debt markets
    • Nominal spreads
    • Zero-volatility spreads (Z-spreads)
    • Option-adjusted spreads (OAS)
    • Asset swap margins
    • Credit default swap (CDS) spreads
  • Credit analysis and credit ratings
  • Know the main factors considered in credit analysis
    • Current and forecast macroeconomic and market environment
    • Competitive situation and financial health of the company
    • Special contractual features of the obligation being analysed
Bond Trading
  • Graduates will be given a portfolio of bonds that they must successfully manage as market conditions change. They will also be given flow trades to price, execute and hedge. This immersive simulation will be run at a pace that allows them to absorb, analyse and act upon the information given to them
Securitisation
  • Know the motives for securitisation
  • Understand the elements and structure of a simple securitisation
    • Originator
    • Receivables to be securitised (collateral pool)
    • Special Purpose Vehicle (SPV)
    • Investors
  • Understand how economic interest in the collateral is transferred to the SPV and why the SPV must be insolvency remote
  • Know the main credit enhancement techniques used in securitisation
    • Over-collateralization
    • Retained spread
    • Insurance
    • Tranching

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