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Bond Markets, Analysis, and Strategies, 10e
ISBN: 9780262367431 | Copyright 2021
Instructor Requests
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| Bond Markets, Analysis, and Strategies (pg. i) | |
| Title Page (pg. i) | |
| Tenth Edition Title Page (pg. iii) | |
| Contents (pg. vii) | |
| Preface (pg. ix) | |
| Changes from the Ninth Edition (pg. ix) | |
| Instructor Supplements (pg. x) | |
| Acknowledgments (pg. xi) | |
| 1 Introduction (pg. 1) | |
| 1 Introduction (pg. 1) | |
| Learning Objectives (pg. 1) | |
| Sectors of the U.S. Bond Market (pg. 2) | |
| Overview of Bond Features (pg. 4) | |
| Risks Associated with Investing in Bonds (pg. 8) | |
| Climate Change and Bond Investing (pg. 13) | |
| Overview of the Book (pg. 14) | |
| Questions (pg. 16) | |
| 2 Pricing of Bonds (pg. 19) | |
| Learning Objectives (pg. 19) | |
| Review of time value of Money (pg. 19) | |
| Pricing a Bond (pg. 26) | |
| Complications (pg. 32) | |
| Pricing Floating-Rate and Inverse-Floating-Rate Securities (pg. 34) | |
| Price Quotes and Accrued Interest (pg. 36) | |
| Key Points (pg. 40) | |
| Questions (pg. 41) | |
| 3 Measuring Yield (pg. 45) | |
| Learning Objectives (pg. 45) | |
| Computing the Yield or Internal Rate of Return on any Investment (pg. 45) | |
| Conventional Yield Measures (pg. 49) | |
| Potential Sources of a Bond’s Dollar Return (pg. 58) | |
| Total Return (pg. 61) | |
| Applications of the Total Return (Horizon Analysis) (pg. 66) | |
| Calculating Yield Changes (pg. 66) | |
| Key Points (pg. 67) | |
| Questions (pg. 68) | |
| 4 Bond Price Volatility (pg. 71) | |
| Learning Objectives (pg. 71) | |
| Review of the Price–Yield Relationship for Option-Free Bonds (pg. 72) | |
| Price-Volatility Characteristics of Option-Free Bonds (pg. 73) | |
| Measures of Bond Price Volatility (pg. 75) | |
| Convexity (pg. 86) | |
| Additional Concerns when Using Duration (pg. 96) | |
| Do not think of Duration as a Measure of Time (pg. 96) | |
| Approximating a Bond’s Duration and Convexity Measure (pg. 97) | |
| Measuring a Bond Portfolio’s Responsiveness to Nonparallel Changes in Interest Rates (pg. 100) | |
| Key Points (pg. 103) | |
| Questions (pg. 105) | |
| 5 The Theory and History of Interest Rates (pg. 109) | |
| Learning Objectives (pg. 109) | |
| Interest-Rate Theories (pg. 110) | |
| Real and Nominal Interest Rates: Fisher’s Law (pg. 115) | |
| Natural Rate of Interest (pg. 116) | |
| Risk-Free Interest Rate and the Existence of a Safe Asset (pg. 117) | |
| Negative Interest Rates (pg. 118) | |
| Historical Interest Rates in the United States (pg. 120) | |
| Key Points (pg. 122) | |
| Questions (pg. 123) | |
| 14011_006 (pg. 125) | |
| Learning Objectives (pg. 125) | |
| Base Interest Rate (pg. 126) | |
| Benchmark Spread (pg. 126) | |
| Term Structure of Interest Rates (pg. 131) | |
| Swap Rate Yield Curve (pg. 152) | |
| Reference Interest Rates for Financial Products (pg. 154) | |
| Key Points (pg. 156) | |
| Questions (pg. 157) | |
| 7 Treasury and Federal Agency Securities (pg. 161) | |
| Learning Objectives (pg. 161) | |
| Treasury Securities (pg. 161) | |
| Stripped Treasury Securities (pg. 167) | |
| Federal Agency Securities (pg. 168) | |
| Key Points (pg. 171) | |
| Questions (pg. 172) | |
| 8 Corporat Debt Investments (pg. 175) | |
| Learning Objectives (pg. 175) | |
| Seniority of Debt in a Corporation’s Capital Structure (pg. 176) | |
| Bankruptcy and Creditor Rights (pg. 177) | |
| Corporate Debt Ratings (pg. 179) | |
| Corporate Bonds (pg. 182) | |
| Medium-Term Notes (pg. 189) | |
| Commercial Paper (pg. 192) | |
| Bank Loans (pg. 194) | |
| Default Risk for Corporate Debt Instruments (pg. 199) | |
| Corporate Downgrade Risk (pg. 202) | |
| Corporate Credit Spread Risk (pg. 202) | |
| Key Points (pg. 204) | |
| Questions (pg. 205) | |
| 9 Municipal Securities (pg. 209) | |
| 14011_009 (pg. 209) | |
| Learning Objectives (pg. 209) | |
| Types and Features of Municipal Securities (pg. 210) | |
| Municipal Money Market Products (pg. 215) | |
| Municipal Variable-Rate Securities (pg. 216) | |
| Credit Risk (pg. 218) | |
| Risks Associated with Investing in Municipal Securities (pg. 221) | |
| Yields on Municipal Bonds (pg. 221) | |
| Municipal Bond Market (pg. 223) | |
| The Taxable Municipal Bond Market (pg. 225) | |
| Key Points (pg. 225) | |
| Questions (pg. 227) | |
| 10 International Bonds (pg. 229) | |
| Learning Objectives (pg. 229) | |
| Developed, Emerging, and Frontier Capital Markets (pg. 230) | |
| Classification of Global Bond Markets (pg. 231) | |
| Non-U.S. Bond Issuers and Bond Structures (pg. 232) | |
| Foreign Exchange Risk and Bond Returns (pg. 234) | |
| Bonds Issued by Non-U.S. Entities (pg. 235) | |
| Global Bond Indexes (pg. 254) | |
| Appendix: Foreign Exchange Rates (pg. 255) | |
| Key Points (pg. 256) | |
| Questions (pg. 257) | |
| 11 Residential Mortgage Loans (pg. 259) | |
| Learning Objectives (pg. 259) | |
| Origination of Residential Mortgage Loans (pg. 260) | |
| Types of Residential Mortgage Loans (pg. 261) | |
| Conforming Loans (pg. 269) | |
| Risks Associated with Investing in Mortgage Loans (pg. 270) | |
| Key Points (pg. 271) | |
| Questions (pg. 271) | |
| 14011_012 (pg. 273) | |
| Learning Objectives (pg. 273) | |
| Sectors of the Residential Mortgage-Backed Security Market (pg. 274) | |
| General Description of an Agency Mortgage Pass-Through Security (pg. 276) | |
| Issuers of Agency Pass-Through Securities (pg. 277) | |
| Prepayment Conventions and Cash Flow (pg. 278) | |
| Factors Affecting Prepayments and Prepayment Modeling (pg. 286) | |
| Cash Flow Yield (pg. 292) | |
| Prepayment Risk and Asset/Liability Management (pg. 294) | |
| Secondary Market Trading (pg. 295) | |
| TBA Coupons (pg. 298) | |
| Specified Trades (pg. 299) | |
| Key Points (pg. 300) | |
| Questions (pg. 302) | |
| 13 Agency Collateralized Mortgage Obligations and Stripped Mortgage-Backed Securities (pg. 307) | |
| Learning Objectives (pg. 307) | |
| Agency Collateralized Mortgage Obligations (pg. 308) | |
| Agency Stripped Mortgage-Backed Securities (pg. 331) | |
| Key Points (pg. 343) | |
| Questions (pg. 344) | |
| 14 Nonagency Residential Mortgage-Backed Securities (pg. 349) | |
| Learning Objectives (pg. 349) | |
| Types of RMBS (pg. 350) | |
| Credit Enhancement (pg. 350) | |
| Cash Flow for Nonagency Rmbs (pg. 356) | |
| Key Points (pg. 361) | |
| Questions (pg. 363) | |
| 15 Commercial Mortgage Loans and Commercial Mortgage-Backed Securities (pg. 365) | |
| Learning Objectives (pg. 365) | |
| Commercial Mortgage Loans (pg. 366) | |
| Commercial Mortgage-Backed Securities (pg. 368) | |
| Types of Deals (pg. 373) | |
| Key Points (pg. 375) | |
| Questions (pg. 376) | |
| 16 Asset-Backed Securities (pg. 379) | |
| Learning Objectives (pg. 379) | |
| Creation of an Asset-Backed Security (pg. 380) | |
| Collateral type and Securitization Structure (pg. 385) | |
| Credit Risks Associated with Investing in Asset-Backed Securities (pg. 387) | |
| Review of Several major types of Asset-Backed Securities (pg. 390) | |
| Dodd-Frank Wall Street Reform and Consumer Protection Act (pg. 400) | |
| Key Points (pg. 401) | |
| Questions (pg. 401) | |
| 17 Collective Investment Vehicles (pg. 403) | |
| 14011_017 (pg. 403) | |
| Learning Objectives (pg. 403) | |
| Investing in COLLECTIVE Investment Vehicles (pg. 404) | |
| Investment Company Shares (pg. 405) | |
| Exchange-Traded Funds (pg. 409) | |
| Hedge Funds (pg. 415) | |
| Real Estate Investment Mortgage Trusts (pg. 417) | |
| Key Points (pg. 418) | |
| Questions (pg. 420) | |
| 14011_018 (pg. 423) | |
| Learning Objectives (pg. 423) | |
| Liquidity and Resilency of a Market (pg. 425) | |
| The Secondary Corporate Bond Market and its Regulation (pg. 428) | |
| Trading (Transaction) Costs (pg. 430) | |
| Pricing Vendors (pg. 432) | |
| Processing a Trade (pg. 433) | |
| Market Infrastructure (pg. 434) | |
| Key Points (pg. 439) | |
| Questions (pg. 442) | |
| 14011_019 (pg. 445) | |
| Learning Objectives (pg. 445) | |
| Drawbacks of Traditional Yield Spread Analysis (pg. 446) | |
| Static Spread: An Alternative to Yield Spread (pg. 446) | |
| Callable Bonds and their Investment Characteristics (pg. 450) | |
| Components of a Bond with an Embedded Option (pg. 454) | |
| Valuation Model (pg. 455) | |
| Option-Adjusted Spread (pg. 469) | |
| Effective Duration and Convexity (pg. 470) | |
| Key Points (pg. 472) | |
| Questions (pg. 472) | |
| 14011_020 (pg. 477) | |
| Learning Objectives (pg. 477) | |
| Static Cash Flow Yield Methodology (pg. 478) | |
| Monte Carlo Simulation Methodology (pg. 487) | |
| Illustrations (pg. 494) | |
| Total Return Analysis (pg. 499) | |
| Key Points (pg. 502) | |
| Appendix: Market-Based Estimates of Duration for RMBS (pg. 503) | |
| Questions (pg. 506) | |
| 14011_021 (pg. 511) | |
| Learning Objectives (pg. 511) | |
| Convertible Bond Provisions (pg. 511) | |
| Categorization of Convertible Securities (pg. 513) | |
| Basic Analytics and Concepts for Convertible Bond Analysis (pg. 515) | |
| Option Measures (pg. 519) | |
| Profile of a Convertible Bond (pg. 521) | |
| Pros and Cons of Investing in a Convertible Bond (pg. 522) | |
| Convertible Bond Arbitrage (pg. 524) | |
| Options Approach to Valuation (pg. 526) | |
| Key Points (pg. 527) | |
| Questions (pg. 528) | |
| 14011_022 (pg. 531) | |
| Learning Objectives (pg. 531) | |
| Overview of Corporate Bond Credit Analysis (pg. 532) | |
| Analysis of Business Risk (pg. 534) | |
| Corporate Governance Risk (pg. 536) | |
| Financial Risk (pg. 537) | |
| The Investment Decision (pg. 541) | |
| Corporate Bond Credit Analysis and Equity Analysis (pg. 541) | |
| Case Study: Credit Analysis of Sirius Xm Holdings Inc. (pg. 542) | |
| Case Study: Sino-Forest Corporation (pg. 552) | |
| Key Points (pg. 558) | |
| Questions (pg. 559) | |
| 14011_023 (pg. 561) | |
| Learning Objectives (pg. 561) | |
| Difficulties in Credit Risk Modeling (pg. 562) | |
| Overview of Credit Risk Modeling (pg. 563) | |
| Credit Ratings Versus Credit Risk Models (pg. 564) | |
| Structural Models (pg. 564) | |
| Estimating Portfolio Credit Risk: Default Correlation and Copulas (pg. 570) | |
| Reduced-Form Models (pg. 571) | |
| Empirical Evidence: Credit Ratings, Structural Models, and Reduced-Form Models (pg. 574) | |
| An Application of Credit Risk Modeling (pg. 575) | |
| Incomplete-Information Models (pg. 579) | |
| Key Points (pg. 580) | |
| Questions (pg. 580) | |
| 14011_024 (pg. 583) | |
| Learning Objectives (pg. 583) | |
| The Asset Allocation Decision (pg. 584) | |
| Portfolio Management Team (pg. 585) | |
| Spectrum of Bond Portfolio Strategies (pg. 586) | |
| Bond Benchmarks (pg. 589) | |
| The Primary Risk Factors (pg. 594) | |
| Top-Down Versus Bottom-Up Portfolio Construction and Management (pg. 595) | |
| Discretionary Versus Quantitative Active Bond Portfolio Strategies (pg. 596) | |
| Discretionary Active Bond Portfolio Strategies (pg. 598) | |
| Smart Beta Bond Strategies (pg. 612) | |
| The Use of Leverage (pg. 614) | |
| Backtesting Bond Portfolio Strategies (pg. 620) | |
| Key Points (pg. 622) | |
| Questions (pg. 623) | |
| 25 Bond Portfolio Construction (pg. 629) | |
| 14011_025 (pg. 629) | |
| Learning Objectives (pg. 629) | |
| Brief Review Of Portfolio Theory and Risk Decomposition (pg. 629) | |
| Application of Portfolio Theory to Bond Portfolio Construction (pg. 631) | |
| Tracking Error (pg. 633) | |
| Cell-Based Approach to Bond Portfolio Construction (pg. 637) | |
| Portfolio Construction with Multi-Factor Models (pg. 639) | |
| Key Points (pg. 654) | |
| Questions (pg. 655) | |
| 14011_026 (pg. 661) | |
| Learning Objectives (pg. 661) | |
| Risk–Return for Corporate Bonds Versus Equities (pg. 662) | |
| Measuring Credit Spread Sensitivity (pg. 663) | |
| Empirical Duration for Corporate Bonds (pg. 665) | |
| Corporate Bond Benchmarks (pg. 672) | |
| Credit Relative Value Strategies (pg. 673) | |
| Constraint-Tolerant Investing (pg. 677) | |
| Using Credit Risk Modeling to Construct Corporate Bond Portfolios (pg. 680) | |
| Corporate Bond Style Factor Investing (pg. 682) | |
| Key Points (pg. 688) | |
| Questions (pg. 690) | |
| 27 Liability-Driven Investing for Defined Benefit Pension Plans (pg. 693) | |
| Learning Objectives (pg. 693) | |
| Understanding the Liabilities of a DB Pension Plan (pg. 694) | |
| LDI Strategies (pg. 697) | |
| DE-Risking Solutions to Mitigate Risk (pg. 700) | |
| Strategies for Hedging Interest-Rate Risk (pg. 701) | |
| Key Points (pg. 709) | |
| Questions (pg. 711) | |
| 28 Bond Performance Measurement and Evaluation (pg. 713) | |
| Learning Objectives (pg. 713) | |
| Requirements for a Bond Performance and Attribution Analysis Process (pg. 713) | |
| Performance Measurement (pg. 714) | |
| Performance Attribution Analysis (pg. 720) | |
| Key Points (pg. 726) | |
| Questions (pg. 727) | |
| 29 Interest-Rate Futures Contracts (pg. 731) | |
| Learning Objectives (pg. 731) | |
| Mechanics of Futures Trading (pg. 732) | |
| Futures Versus Forward Contracts (pg. 734) | |
| Risk and Return Characteristics of Futures Contracts (pg. 735) | |
| Interest-Rate Futures Contracts (pg. 735) | |
| Pricing and Arbitrage in the Interest-Rate Futures Market (pg. 744) | |
| Bond Portfolio Management Applications (pg. 752) | |
| Key Points (pg. 770) | |
| Questions (pg. 771) | |
| 30 Interest-Rate Options (pg. 775) | |
| Learning Objectives (pg. 775) | |
| Options Defined (pg. 776) | |
| Differences Between an Option and a Futures Contract (pg. 776) | |
| Types of Interest-Rate Options (pg. 776) | |
| Intrinsic Value and Time Value of an Option (pg. 779) | |
| Profit and Loss Profiles for Simple Naked Option Strategies (pg. 781) | |
| Put–Call Parity Relationship and Equivalent Positions (pg. 793) | |
| Option Price (pg. 795) | |
| Models for Pricing Options (pg. 796) | |
| Sensitivity of Option Price to Change in Factors (pg. 805) | |
| Hedge Strategies (pg. 809) | |
| Key Points (pg. 815) | |
| Questions (pg. 816) | |
| 31 Interest-Rate Swaps, Forward-Rate Agreements, Caps, and Floors (pg. 819) | |
| Learning Objectives (pg. 819) | |
| Interest-Rate Swaps (pg. 819) | |
| Forward Rate Agreements (pg. 842) | |
| Interest-Rate Caps and Floors (pg. 844) | |
| Key Points (pg. 851) | |
| Questions (pg. 852) | |
| 32 Credit Default Swaps (pg. 857) | |
| Learning Objectives (pg. 857) | |
| Credit Events (pg. 858) | |
| Credit Events for an Asset-Backed Security (pg. 860) | |
| Single-Name CDS (pg. 861) | |
| Index CDS (pg. 870) | |
| Economic Interpretation of a CDS and an Index CDS (pg. 874) | |
| Using CDS for Controlling Credit Risk (pg. 876) | |
| Key Points (pg. 877) | |
| Questions (pg. 878) | |
| Appendix_ The Investment Management Agreement (pg. 881) | |
| Sample Investment Management Agreement (pg. 882) | |
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