Type of Credit: Elective
Credit(s)
Number of Students
The purpose of this course, Bond Market Analysis, is to provide a comprehensive understanding on the various types of bonds (oftentimes referred to as fixed-income securities) and the function of a bond market (fixed-income securities market). A bond is a debt security issued by a government, a quasi-government agent, a corporation, or a special purpose truest. The issuers of these bonds are debtors and the investors who purchase the bonds are creditors. The place where bonds are issued initially and bought and sold thereafter by the various participants is called the bond market. The U.S. bond market, being the most sophisticated and the largest in the world both in the volume of issuance and trading, is used as an example for illustration throughout the course.
At the outset, this course demonstrates the thinking process and the practical application of bond math to valuate a bond from different aspects of its cash flow. The bond math is fundamental in understanding the basic operation of the “cash market” of bonds as instruments of financing as well as investment. The bond math is also critical in the analysis of the “bond derivatives market,” where forwards, futures, and swaps are originated and traded. These derivatives are bond-based transaction contracts used for the purpose of hedging, speculating, and managing risks. This course will analyze the operation of both the bond cash market and the bond derivatives market.
A unique feature of this course is the extensive and detailed explanation on asset securitization, alternatively termed structured finance. Asset securitization is an innovative and efficient way of financing for lenders. And asset-backed securities (structured finance securities) have become an important and attractive part of bond investment portfolios. Over the past twenty years, they have been either the largest or the second largest sector of the U.S. bond market.
The valuation of a bond involves more than just the mathematical calculation of the value of its cash flow. The additional and critically important element of the bond valuation is the credit rating of its issuer. In credit ratings, the conceptual framework for rating a corporate bond differs fundamentally from that of an asset-backed security. For that reason, the final element of this course will be a comprehensive discussion to compare the concept and methodology of corporate
finance and structured finance credit ratings.
能力項目說明
By taking this course, students will be able to gain a comprehensive understanding on the process of how an entity--be it a government agent, a corporation, or a special purpose entity (of asset securitization)--raises funds in the bond market to finance its business activities. Based on the understanding of unique characteristics of different types of bonds and their derivative securities, students will be able to develop necessary skills in managing bond investments.
| 教學週次Course Week | 彈性補充教學週次Flexible Supplemental Instruction Week | 彈性補充教學類別Flexible Supplemental Instruction Type |
|---|---|---|
|
Date |
Topocs |
Lecture Notes (PowerPoint Slides) |
|
8-Sep |
*Introduction *The U.S. financial markets-2022 |
Cls1a-Introduction |
|
15-Sep |
*Overview of global fixed-income securities markets |
Cls1b-The US Financial Markets-2022 |
|
22-Sep |
*Fixed income securities: concept, terminology, and types |
Cls1c-Fixed Income Securities: Concept, Terminology, and Types |
|
6 Oct to 27-Oct |
*Bond Math Fundamentals: Interest rates, present value, future value, bond prices, yield-to-maturity, duration and convexity, total rate of returns, immunization of bond portfolios, and bond indexes |
Cls2-Bond Math Fundamentals |
|
3-Nov |
*The bond forward market |
Cls3-Analysis of Bond Forwards |
|
10-Nov |
*The bond futures market |
Cls4-Analysis of Bond Futures |
|
17-Nov |
*The swaps market |
cls5-Analysis of Interest Rate Swaps |
|
24-Nov |
*Residential mortgages and residential mortgage market *Basics of asset-backed securities |
Cls6a-Residential Mortgages Cls6b-Residential Mortgage Market |
|
1 Dec - 8 Dec |
*Residential mortgage backed securities *Agency RMBS |
Cls7a-Residential Mortgage Backed Securities Cls7b-Agency RMBS |
|
15-Dec |
*Corporate bond and structure financed credit ratings |
Cls8-Corporate Bond and Structured Finance Credit Ratings |
|
22-Dec |
*The financial crisis of 2008 and bank failures of 2023 |
Cls9-Financial Crises and the Banking Failures |
The course grade will be determined by the “individual conduct” throughout the semester and the group performance of an investment project at the end of the semester. The individual conduct throughout the semester is defined as:
▪Attending class regularly
▪Arriving at class punctually
▪Participating in class discussion actively
▪Paying close attention to class lectures
The group investment project is actually the final exam. All groups will be given a fixed amount of money (hypothetically) to invest in designated fixed-income securities for a given period of time. The project consists of two parts: First, calculate the total rate of return of the investment in each of the designated securities under various interest rate scenarios during the investment period. Second, explain why the performance (different rates of return) of these securities varies significantly depending on the interest rate scenario. The investment project is scored by group, members of the same group will receive the same score.
Students who maintain a perfect, or near perfect (missing class only once) record of class attendance will be awarded merit points to improve their grades. No grade will be given if missing four class meetings (more than 25% of class meeting hours) during the semester. The class will be curved relative to overall student performance. I will do my best to be fair in assigning grades. When the course grades are announced, they are final. Nothing can be done to change the course grades.