Advanced Bond Portfolio Management & Trading Simulation Workshop

5 days 10-14 Jul 2017, Singapore Singapore $6,800.00 Download brochure Add to basket
5 days 10-14 Sep 2017, Dubai UAE £4,595.00 Download brochure Add to basket

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Overview

 Course Description

This 5-day training programme provides participants with a highly practical course agenda dedicated to enhancing understanding and skills in all aspects of bond trading and portfolio management, from strategic asset allocation and objective setting to benchmark selection, portfolio construction and risk budgeting, identification and implementation of active strategies, through to performance measurement and attribution analysis.

The increasingly important role of derivatives within portfolio management is also reflected within the course agenda. Delegates will gain a deeper understanding of interest rate and credit derivatives, their roles in fixed income analysis and identifying trading opportunities, application to implementation of active trading and risk management strategies, potentially offering greater efficiency in portfolio management.

Bond Portfolio Management Trading Simulation

In addition to the strategic perspectives, the programme agenda provides delegates with realistic exposure to the day to day challenges and opportunities facing the trader or portfolio manager – identifying and interpreting market signals, constructing a broad spectrum of strategies, and implementing them within a portfolio context subject to risk management constraints, in pursuit of superior risk adjusted performance.

To this end a significant component of the programme timetable incorporates a Bond Portfolio Management Trading Simulation, during which each day over the course of the programme, delegates will participate in a realistic fixed income portfolio management simulation – using real-time market price and risk data, with access to securities and derivatives drawn from the global fixed income markets, implementing a range of active strategies within a portfolio context, subject to risk constraints, with the ultimate objective of generating enhanced risk adjusted returns over the 5 day course duration.

The overall objectives of the Bond Portfolio Management Trading Simulation workshop are to provide a practical and realistic context to understand the key characteristics of fixed income securities and derivatives, their relationship to the prevailing market environment, and to enhance understanding of the key processes, objectives and constraints of successful bond portfolio management.

Teaching Methodology

Classroom based teaching, complemented by extensive use of case studies and spreadsheet based exercises enable participants to master a practical understanding of all aspects of the course agenda, is complemented by the Bond Portfolio Management Trading Simulation, during which each day delegates manage a portfolio of fixed income securities and derivatives within pre-determined constraints, using real-time market price and risk data, within a set of constrained risk parameters, with the objective of generating enhanced risk-adjusted returns over the course duration.

Software

In addition to comprehensive course documentation, participants are provided with a suite of spreadsheet based software to utilise during the programme within the Bond Portfolio Management Simulation and other exercises. They are free to retain this for their own use after the course conclusion. 

Summary Programme Overview and Objectives: 

  • Bond Portfolio Management Strategy– Strategic and Tactical Asset Allocation
  • Fixed Income Pricing and Risk Analysis
  • Benchmark design and selection
  • Portfolio Construction and Risk Budgeting
  • Identifying and Interpreting Market Signals
  • Execution of Active Management Strategies
  • Enhancing Risk-adjusted Portfolio Returns
  • Efficient Use of Derivatives in Fixed Income Portfolio Management
  • Interest Rate and Credit Derivatives: Fundamental Characteristics; Pricing and Risk Characteristics
  • Bond Portfolio Risk Measurement and Management
  • Performance Measurement and Attribution Analysis

 

Who should attend

  • Fund Managers
  • Portfolio Managers
  • Fixed Income Analysts
  • Traders
  • Fixed Income Trading and Sales Personnel
  • Pension Fund and Insurance Fund Managers
  • Sovereign Wealth Fund Managers
  • Central Bank Reserves Asset Managers
  • Hedge Fund Managers and Analysts
  • Performance and Investment Analysts
  • Risk Controllers
  • Risk Managers and Analysts
  • Middle Office Professionals

Instructors

We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

Dubai
Graham Dudlyke

Graham Dudlyke is a leading consultant and specialist trainer with over three decades of experience within the international financial markets, holding senior positions in a number of leading financial institutions in both London and New York.

His career boasts a wealth of experience within the derivative and capital markets, with senior roles at JP Morgan chase and Mitsubishi UFJ Securities International within derivatives trading, marketing, structuring and risk management. At JP Morgan he managed rate option trading books, and additionally held responsibility for developing the derivatives trading and marketing presence within European markets. At Mitsubishi UFJ he held responsibility for the management of interest rate derivatives trading, and played a major role in building and developing the interest rate derivatives trading business into new products and markets.

In 2011 Graham joined Hilltop Fund Management LLP, London, as a consultant, advising on hedge fund trading and complex investment strategies.

As an independent training consultant for over 10 years, Graham brings his unique practitioner’s perspective and insight to financial markets, providing training and consultancy services to many of the world’s leading financial institutions - banks, institutional investors and asset managers, official institutions and other related financial bodies. The world’s largest asset manager, global ‘bulge bracket’ investment banks, a number of supranational development banks, Fortune 500 companies, as well as central banks across four continents are all represented amongst the institutions that Graham has worked with in the delivery of specialised training and consultancy needs.

Graham is a consultant to Euromoney Institutional Investor plc, international business-to-business publisher, business conference, seminar and training course provider, as a regular and world renowned expert on derivatives and capital markets.

Graham holds an M.B.A. from Imperial College, London and an M.A. from Oxford University.

Singapore
Graham Dudlyke

Graham Dudlyke is a leading consultant and specialist trainer with over three decades of experience within the international financial markets, holding senior positions in a number of leading financial institutions in both London and New York.

His career boasts a wealth of experience within the derivative and capital markets, with senior roles at JP Morgan chase and Mitsubishi UFJ Securities International within derivatives trading, marketing, structuring and risk management. At JP Morgan he managed rate option trading books, and additionally held responsibility for developing the derivatives trading and marketing presence within European markets. At Mitsubishi UFJ he held responsibility for the management of interest rate derivatives trading, and played a major role in building and developing the interest rate derivatives trading business into new products and markets.

In 2011 Graham joined Hilltop Fund Management LLP, London, as a consultant, advising on hedge fund trading and complex investment strategies.

As an independent training consultant for over 10 years, Graham brings his unique practitioner’s perspective and insight to financial markets, providing training and consultancy services to many of the world’s leading financial institutions - banks, institutional investors and asset managers, official institutions and other related financial bodies. The world’s largest asset manager, global ‘bulge bracket’ investment banks, a number of supranational development banks, Fortune 500 companies, as well as central banks across four continents are all represented amongst the institutions that Graham has worked with in the delivery of specialised training and consultancy needs.

Graham is a consultant to Euromoney Institutional Investor plc, international business-to-business publisher, business conference, seminar and training course provider, as a regular and world renowned expert on derivatives and capital markets.

Graham holds an M.B.A. from Imperial College, London and an M.A. from Oxford University.

Venue

Singapore

4-5 Star Hotel in Singapore

All of our courses are held in 4 – 5 star hotels, chosen for their location, facilities and level of service. You can be assured of a comfortable, convenient learning environment throughout the duration of the course.

Due to the variation in delegate numbers, we will send confirmation of the venue to you approximately 2 weeks before the start of the course. Course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

Dubai

Dubai Hotel

This programme takes place on a non-residential basis at a central Dubai hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

Dubai has an incredible number of hotels. Courses held here are mainly held at the J.W. Marriot hotel, Sheraton Dubai Creek and Le Meridien all in central Dubai.
 
J.W. Marriott Hotel – Abu Baker Al Siddique Road, PO Box 16590, Dubai, U.A.E
Phone +971 4 607 7811; Fax +971 4 607 7011
www.marriott.com
 
At the JW Marriott Dubai you will enjoy luxury on your terms; impeccable service and elegant surroundings allow you to relax and focus on your own agenda. With 344 luxuriously appointed rooms and suites the J.W. Marriott provides an oasis of calm in a busy city while the award-winning restaurants have the recipe for satisfying a taste for international flavour.        
 
Sheraton Dubai Creek – Baniyas Street, PO Box 4250, Dubai, U.A.E
Phone +971 4 228 1111; Fax +971 4 221 3468
www.starwoodhotels.com
 
After undergoing a complete renovation, the Sheraton Dubai Creek Hotel& Towers reopened October 10th, 2002 with a fully refurbished interior and exterior. The 255 room hotel now offers more creek-view rooms, redesigned atrium lobby, outstanding food and beverage facilities, upgraded rooms with state-of-the-art data connectivity, and Dubai's newest conference facilities. 

Le Meridien – PO Box 10001, Airport Road, Dubai, U.A.E
Phone +971 4 282 4040; Fax +971 4 282 5540
www.lemeridien-dubai.com
 
Le Meridien Dubai is a five star deluxe hotel built on two floors and surrounded by 38 acres of landscaped gardens. The hotel is elegantly furnished with a french accent that incorporates the individual character and flair of the local culture. The hotel is minutes away from the commercial districts and shopping centres and a short distance from Dubai International Airport. Facilities include a choice of 15 restaurants and bars, 24-hour room and laundry service, two fully equipped business centres and a state-of-the-art Spa and fitness club.

 
 

Related Courses

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Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:





Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

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We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:


Read more about our offering or complete a call back request to speak to a learning specialist.

 

Agenda

Agendas are localised, please select your preferred location.

 Day 1

Bond Portfolio Management Trading Simulation – Day 1

  • Introduction and orientation

  • Simulation objectives and risk constraints

  • Implementation: Execution of active strategies; Portfolio Construction and Risk Budgeting

Overview of Bond Trading and Portfolio Management

  • Strategic and tactical asset allocation
  • Long term policy – strategic asset allocation
  • Portfolio objectives:

                   - Absolute (Total) Returns versus Relative returns
                   - Liability Driven Investment (LDI)
                   - Investment horizons
                   - Liquidity constraints

  • Why invest in bonds?

                     - The role of fixed income securities in investment management
                     - Fundamental characteristics of bonds
                     - Bond types
                              - Government and Agency bonds
                              - Credit markets: Corporate bonds
                              - Domestic and offshore bonds
                              - Islamic finance: Sukuk

  • Bond structures

                       - Fixed and floating rate bonds
                       - Inflation linked bonds
                       - Option embedded bonds (callable, puttable, convertible)
                       - Asset backed securities (RMBS, CMBS, CDOs)
                       - Bond trading and portfolio management
                                    - Overview of institutional investment management
                                    - Investor types and investment objectives
                                                 - Pension funds
                                                 - Insurance Cos. (Property and Casualty, Life)
                                                 - Investment Cos.
                                                        - Mutual funds and Investment Trusts
                                                        - Hedge Funds
                                     - Investment management strategy
                                                  - Strategic and tactical asset allocation
                                     - Active, passive investment strategies
                                     - Structured investment strategies
                                                    - Liability driven investment
                                                    - Horizon matching and immunisation strategies

Bond Risk Analysis

  • Interest rate risk characteristics
  • Price and re-investment rate risk analysis
  • Measures of interest rate risk

                       - Duration, Modified Duration and Weighted Duration measures
                       - DV01/PV01 – measures of price risk
                       - Duration properties of fixed and floating rate bonds
                       - Option embedded bonds; ‘Effective’ Duration

  • Applications of duration:

                         - Measuring position and portfolio risk
                         - Hedging – calculating hedge ratios
                         - Calculation of position ratios for relative value strategies

  • Duration in bond portfolio management

                           - Calculation of portfolio duration (absolute and benchmark relative)
                           - Weighted duration as a measure of risk allocation within a portfolio/benchmark
                           - Bucketed duration; setting maturity buckets in duration analysis
                           - Weaknesses in bucketed duration approach: Tracking error 
                           - Key Rate Duration analysis
                           - Calculation of portfolio Key Rate Duration

  • The role of duration in active and passive management:

                             - Passive management; index replication
                             - Active management: Duration and duration-neutral strategies
                             - Immunisation: Using duration in asset-liability management

  • Limitations of duration: Assumptions and shortcomings
  • Convexity

                              - Calculating and interpreting convexity for option-free and option-embedded bonds
                              - Estimating the value of convexity and the relationship to interest rate volatility
                              - Positive and negative convexity: impact on bond values and yields
                              - Convexity in active portfolio management
                              - Calculating portfolio convexity (absolute and benchmark relative)
                              - Convexity as a measure of yield curve risk

  • Credit risk exposure

                              - Default and recovery risks
                              - Spread risk

  • Measures of credit risk

                                - Spread duration, DV01
                                - Calculating spread duration for securities, sector, portfolio
                                - Duration Times Spread (DTS) - a superior measure of credit risk exposure?

Case Study:  Key rate duration analysis of bond portfolio

Case Study:  Implementation of duration neutral trades; calculation of position ratios within specified risk budget/tracking error

Case Study:  Impact of portfolio convexity on performance under parallel and non-parallel curve
     shifts. Analysis of interest rate volatility and portfolio convexity.


Day 2


Bond Portfolio Management Trading Simulation – Day 2 

  • Real-time portfolio revaluation and performance analysis
  • De-brief and Market analysis
  • Trading: Retention or adjustment of active strategies within portfolio risk constraints
  • Currency hedging; active FX overlay strategies

Fixed Income Benchmarks

  • Fixed income market benchmarks
  • Benchmark providers (e.g. Markit iBoxx, FTSE, Morningstar, Barclays etc.)
  • Benchmark types

                         - Government and Sovereign bond indices
                         - Corporate indices
                         - ABS/MBS indices
                         - Emerging market bond indices

  • Benchmark risk dimensions

                         - Currency (hedged and unhedged)
                         - Interest rate risk (Duration)
                         - Maturity profile (short/medium/long)
                         - Credit
                         - Security type (fixed/floating/inflation-linked/callable)
                         - Index construction (weighting/re-investment and index changes)

  • The role of benchmarks in fixed income portfolio management

                          - Duration targeting
                                  - Risk-return objectives
                                   - Investment horizons
                                   - Liquidity

  • Benchmark selection for different investor types – optimal benchmark selection

                           - Customised benchmarks
                               - Asset liability management in benchmark design and selection
                               - The influence of benchmarking on investment decisions 
 

Portfolio Construction and Risk Budgeting

  • Setting portfolio objectives and constraints

                            - Capital preservation
                            - Concentration limits
                            - Liquidity requirements

  • Portfolio risk measurement

                                - Standard deviation
                                - Downside deviation

  • Value at risk (VaR)

                             - Modelling techniques and assumptions
                             - Investment horizon and confidence level

  • Tracking Error (TE)    

                            - Calculation of tracking error for the active portfolio
                            -  Tracking error as a measure of active risk (alpha)
                            - Using tracking error as a portfolio risk budgeting tool

  • Performance measurement

                         - Risk-adjusted performance measures
                         - Sharpe, Sortino and Information ratios measures

  • Risk budgeting in active portfolios

                         - Efficient allocation of tracking error to portfolio risk factors
                         - Using mean variance analysis to optimise portfolio construction

  • The principles of efficient active management

                         - The fundamental law of active management (Grinhold, Kahn)
                         - Portfolio optimization of alpha
                         - Maximisation of information ratios

Case Study:  Calculation of portfolio risk measures: Value at Risk and Tracking Error

Currency Exposure Management

  • Currency risk in portfolio management
  • Hedged or unhedged? The rationale for management of FX risk in multi-currency portfolios
  • Active FX risk overlays
  • Currency hedging using FX swaps; impact on risk adjusted returns
  • Optimising currency hedging strategy


Day 3


Bond Portfolio Management Trading Simulation – Day 3

  • Real-time portfolio revaluation and performance analysis
  • De-brief and Market analysis
  • Trading: Retention or adjustment of active strategies within portfolio risk constraints
  • Using interest rate derivatives in bond portfolio management 


Yield Curves – Modelling, Analysis and Forecasting

  • Par, spot and forward rate curves
  • Understanding and interpreting yield curves
  • Yield curve theories

                    - Expectations theory and alternative theories

  • The relationship of yield curves to the global macro-economic environment

                     - Economic activity
                     - Inflationary pressures
                     - Fiscal and monetary policy

  • Interpretation and forecasting yield curve movements

                      - Parallel yield curve shifts
                      - Non-parallel curve shifts (steepening/flattening/barbell)
                      - Econometric forecasting models

  • Benchmark yield curves

                      - Swap and government (risk-free) yield curves

  • Yield curve modelling and construction

                      - Constructing spot rate (zero coupon) yield curves
                      - Curve fitting and smoothing algorithms
                      - How do we select and construct a stable benchmark curve?

  • Yield curves and fundamental value

                     - Using yield curves for bond pricing and relative value analysis
                     - Identifying ‘cheap’ and ‘expensive’ securities; trade identification

  • Implied forward rates

                    - Deriving the term structure of implied forward rates
                    - Interpretation and applications of implied forward rates
                    - Using forward rates to identify trading opportunities
                    - Using forward rates in horizon analysis
                    - Understanding and profiting from forward rate bias

Portfolio Management Strategies

  • Passive and active investment strategies
  • Passive management – Indexation

                    - Portfolio construction methods:
                              - Full replication
                              - Optimised sampling
                    - Factor analysis in index replication
                               -  Hedge Fund replication
                    - Sources of tracking error in passive management
                    - Alternative techniques for Beta replication:
                                   - Exchange Traded Funds (ETFs)
                                   - Derivatives and Structured Products
                                   - Tradable indices (passive and active)

  • Active Management

                           - Alpha () : Active risk and return
                           - Separation of Beta from Alpha: Portable alpha techniques
                           - Portfolio optimization of alpha
                           - Performance measurement and evaluation

  • Structured portfolio strategies

                        - ALM and Liability driven investment strategies
                        - Total return strategies
                        - Immunisation
                                - Risks in immunisation
                                - ‘Horizon matching’ strategies

Day 4


Bond Portfolio Management Trading Simulation – Day 4
 

  • Real-time portfolio revaluation and performance analysis

  • De-brief and Market analysis

  • Trading: Retention or adjustment of active strategies within portfolio risk constraints

  • Using credit derivatives in implementation of active strategies 

Active Fixed Income Portfolio Management Strategies

  • Fixed income portfolio active management strategies
  • Bond portfolio management strategies:

                        - Macro strategies
                                - Directional rates and RV rates
                        - Quantitative strategies

  • Carry strategies
  • Interest rate strategies

                         - Directional: Duration extension/contraction
                         - Relative value: Duration neutral - Slope and Convexity trades
                                           - Bullet/barbell and ladder portfolios
                         - Strategy formulation
                                           - Fundamental value
                                           - Macroeconomic environment
                                           - Market sentiment
                           - Strategy execution
                                           - Implementing parallel, slope and convexity trades
                                           - Constraints of long only, cash only restrictions
                             - Horizon analysis in active strategies
                                             -  ‘Roll down and carry’
                                             - Carry trades

  • Active Credit strategies:

                              - Sector rotation
                               - Security selection
                               - Pairs (long/short) trading
                               - Curve trades
                               - Directional and RV strategies

  • Other fixed income active strategies

                                - Bond swaps and switches
                                 - Yield pick-up, quality pick-up trades

Case Study:  Implementation of duration neutral slope and convexity trades; calculation of position ratios within specified risk budget/tracking error

Case Study:  Impact of portfolio convexity on performance under parallel and non-parallel curve
     shifts. Analysis of interest rate volatility and portfolio convexity.

Interest Rate Derivatives in Bond Portfolio Management

  • Interest Rate Derivatives

                     - Listed and OTC derivatives
                     - Bond futures
                     - Interest rate swaps and basis swaps

  • Bond Futures

                      - Operational mechanics of trading bond futures
                      - The role of the clearing house; margin (initial, variation, netting facilities)
                      - Bond futures contract types and specifications
                      - Pricing bond futures; relationship to cash markets; conversion factors; CTD; basis
                      - Interest rate risk: calculating interest rate risk for bond futures

  • Interest rate and Currency Swaps

                       - Swap mechanics
                   - Nomenclature, terminology and market quotation and execution methods
                       - What are the drivers of swap rates?
                       - Pricing and valuation of interest rate swaps
                       - Risk characteristics (DV01, Duration)
                       - Execution, clearing and settlement mechanics
                       - Documentation and legal issues

  • Applications of interest rate derivatives in bond portfolio management 

                        - Hedging interest rate risk
                                 - Duration management using interest rate derivatives
                                 - Basis risks
                        - Active Interest Rate Strategies Using Swaps and Bond Futures
                                   - Interest rate swaps/bond futures as a substitute for fixed income bond investment
                                   - Macro rates and relative value strategies
                                   - Benefits of separating liquidity from interest rate risk management
                                   - Limitations and constraints on implementation in long only portfolios
                                   - Costs and benefits of derivatives in implementing active management strategies


Day 5


Bond Portfolio Management Trading Simulation – Day  

  • Simulation workshop conclusion and results
  • Performance and attribution analysis of portfolios
  • Review and de-brief
  • Presentation and award of prizes

Asset Swaps and Credit Derivatives 

  • Asset Swaps

                     - Relative value analysis
                     - Government spreads Vs. ASW, Z-spread
                     - Interpreting and understanding asset swap spreads
                                   - Spread determinant and drivers
                                   - Using asset swap pricing in RV analysis

  • Credit Default Swaps (CDS)
  • Definitions, nomenclature and market conventions
  • Credit Events definitions
  • Settlement mechanisms
  • Single asset and basket swaps
  • Credit indices (iTRAXX, CDX)
  • Index CDS
  • Standardised contract terms
  • Transaction and settlement mechanics 
  • Pricing and valuation of credit default swaps
  • CDS risk characteristics

                        - Calculating spread risk of credit default swaps (Spread duration, DV01)
                        - Counterparty credit risk
                        - Operational risks

  • Understanding the relationship between CDS premia and Asset swap spreads

                         - Determinants of the (Asset swap - CDS) basis

Credit Derivatives in Bond Portfolio Management

  • Active credit trading strategies using credit derivatives

                          - Directional and relative value trading strategies
                                   - Sector selection
                                   - Securities selection
                                   - Curve trades
                                   - Constraints and limitations on implementation in ‘long only’ portfolios
                           - Leverage
                           - Creating synthetic ‘long’ and ‘short’ credit risk exposure

  • Hedging portfolio credit risk exposure

                             - Basis risks between CDS and corporate bonds
                             - Tracking error considerations

Performance Measurement and Attribution

  • Performance measurement

                    - Measurement of returns
                                 - Standardised performance calculation, presentation and reporting standards
                                 - Summary of Global Investment Performance Standards (GIPS) (2010)
                     - Relative (active) returns: Beta () and alpha ()
                                  - Selection of appropriate benchmarks for comparison (index, risk-free rate)
                                  - Calculation of benchmark relative returns (excess returns)

  • Review of performance attribution models
  • Fixed income attribution analysis
  • Yield curve theories

                         - Implied forward rates
                         - Horizon analysis: Carry and break-even returns

  • Portfolio risk decomposition using key rate duration
  • Benchmark relative analysis
  • Weighted duration analysis

                            - Yield curve analysis (shift, twist and curvature (Butterfly)) attribution
                             - Parallel and non-parallel curve exposure attribution
                             - Spread (credit)
                             - Carry and roll-down contribution

  • Yield curve decomposition

Case Study:  Practical exercise; Attribution analysis of bond portfolio

Course summary and close

 


 

Day 1

Bond Portfolio Management Trading Simulation – Day 1

  • Introduction and orientation

  • Simulation objectives and risk constraints

  • Implementation: Execution of active strategies; Portfolio Construction and Risk Budgeting

Overview of Bond Trading and Portfolio Management

  • Strategic and tactical asset allocation
  • Long term policy – strategic asset allocation
  • Portfolio objectives:

                   - Absolute (Total) Returns versus Relative returns
                   - Liability Driven Investment (LDI)
                   - Investment horizons
                   - Liquidity constraints

  • Why invest in bonds?

                     - The role of fixed income securities in investment management
                     - Fundamental characteristics of bonds
                     - Bond types
                              - Government and Agency bonds
                              - Credit markets: Corporate bonds
                              - Domestic and offshore bonds
                              - Islamic finance: Sukuk

  • Bond structures

                       - Fixed and floating rate bonds
                       - Inflation linked bonds
                       - Option embedded bonds (callable, puttable, convertible)
                       - Asset backed securities (RMBS, CMBS, CDOs)
                       - Bond trading and portfolio management
                                    - Overview of institutional investment management
                                    - Investor types and investment objectives
                                                 - Pension funds
                                                 - Insurance Cos. (Property and Casualty, Life)
                                                 - Investment Cos.
                                                        - Mutual funds and Investment Trusts
                                                        - Hedge Funds
                                     - Investment management strategy
                                                  - Strategic and tactical asset allocation
                                     - Active, passive investment strategies
                                     - Structured investment strategies
                                                    - Liability driven investment
                                                    - Horizon matching and immunisation strategies

Bond Risk Analysis

  • Interest rate risk characteristics
  • Price and re-investment rate risk analysis
  • Measures of interest rate risk

                       - Duration, Modified Duration and Weighted Duration measures
                       - DV01/PV01 – measures of price risk
                       - Duration properties of fixed and floating rate bonds
                       - Option embedded bonds; ‘Effective’ Duration

  • Applications of duration:

                         - Measuring position and portfolio risk
                         - Hedging – calculating hedge ratios
                         - Calculation of position ratios for relative value strategies

  • Duration in bond portfolio management

                           - Calculation of portfolio duration (absolute and benchmark relative)
                           - Weighted duration as a measure of risk allocation within a portfolio/benchmark
                           - Bucketed duration; setting maturity buckets in duration analysis
                           - Weaknesses in bucketed duration approach: Tracking error 
                           - Key Rate Duration analysis
                           - Calculation of portfolio Key Rate Duration

  • The role of duration in active and passive management:

                             - Passive management; index replication
                             - Active management: Duration and duration-neutral strategies
                             - Immunisation: Using duration in asset-liability management

  • Limitations of duration: Assumptions and shortcomings
  • Convexity

                              - Calculating and interpreting convexity for option-free and option-embedded bonds
                              - Estimating the value of convexity and the relationship to interest rate volatility
                              - Positive and negative convexity: impact on bond values and yields
                              - Convexity in active portfolio management
                              - Calculating portfolio convexity (absolute and benchmark relative)
                              - Convexity as a measure of yield curve risk

  • Credit risk exposure

                              - Default and recovery risks
                              - Spread risk

  • Measures of credit risk

                                - Spread duration, DV01
                                - Calculating spread duration for securities, sector, portfolio
                                - Duration Times Spread (DTS) - a superior measure of credit risk exposure?

Case Study:  Key rate duration analysis of bond portfolio

Case Study:  Implementation of duration neutral trades; calculation of position ratios within specified risk budget/tracking error

Case Study:  Impact of portfolio convexity on performance under parallel and non-parallel curve
     shifts. Analysis of interest rate volatility and portfolio convexity.


Day 2


Bond Portfolio Management Trading Simulation – Day 2 

  • Real-time portfolio revaluation and performance analysis
  • De-brief and Market analysis
  • Trading: Retention or adjustment of active strategies within portfolio risk constraints
  • Currency hedging; active FX overlay strategies

Fixed Income Benchmarks

  • Fixed income market benchmarks
  • Benchmark providers (e.g. Markit iBoxx, FTSE, Morningstar, Barclays etc.)
  • Benchmark types

                         - Government and Sovereign bond indices
                         - Corporate indices
                         - ABS/MBS indices
                         - Emerging market bond indices

  • Benchmark risk dimensions

                         - Currency (hedged and unhedged)
                         - Interest rate risk (Duration)
                         - Maturity profile (short/medium/long)
                         - Credit
                         - Security type (fixed/floating/inflation-linked/callable)
                         - Index construction (weighting/re-investment and index changes)

  • The role of benchmarks in fixed income portfolio management

                          - Duration targeting
                                  - Risk-return objectives
                                   - Investment horizons
                                   - Liquidity

  • Benchmark selection for different investor types – optimal benchmark selection

                           - Customised benchmarks
                               - Asset liability management in benchmark design and selection
                               - The influence of benchmarking on investment decisions 
 

Portfolio Construction and Risk Budgeting

  • Setting portfolio objectives and constraints

                            - Capital preservation
                            - Concentration limits
                            - Liquidity requirements

  • Portfolio risk measurement

                                - Standard deviation
                                - Downside deviation

  • Value at risk (VaR)

                             - Modelling techniques and assumptions
                             - Investment horizon and confidence level

  • Tracking Error (TE)    

                            - Calculation of tracking error for the active portfolio
                            -  Tracking error as a measure of active risk (alpha)
                            - Using tracking error as a portfolio risk budgeting tool

  • Performance measurement

                         - Risk-adjusted performance measures
                         - Sharpe, Sortino and Information ratios measures

  • Risk budgeting in active portfolios

                         - Efficient allocation of tracking error to portfolio risk factors
                         - Using mean variance analysis to optimise portfolio construction

  • The principles of efficient active management

                         - The fundamental law of active management (Grinhold, Kahn)
                         - Portfolio optimization of alpha
                         - Maximisation of information ratios

Case Study:  Calculation of portfolio risk measures: Value at Risk and Tracking Error

Currency Exposure Management

  • Currency risk in portfolio management
  • Hedged or unhedged? The rationale for management of FX risk in multi-currency portfolios
  • Active FX risk overlays
  • Currency hedging using FX swaps; impact on risk adjusted returns
  • Optimising currency hedging strategy


Day 3


Bond Portfolio Management Trading Simulation – Day 3

  • Real-time portfolio revaluation and performance analysis
  • De-brief and Market analysis
  • Trading: Retention or adjustment of active strategies within portfolio risk constraints
  • Using interest rate derivatives in bond portfolio management 


Yield Curves – Modelling, Analysis and Forecasting

  • Par, spot and forward rate curves
  • Understanding and interpreting yield curves
  • Yield curve theories

                    - Expectations theory and alternative theories

  • The relationship of yield curves to the global macro-economic environment

                     - Economic activity
                     - Inflationary pressures
                     - Fiscal and monetary policy

  • Interpretation and forecasting yield curve movements

                      - Parallel yield curve shifts
                      - Non-parallel curve shifts (steepening/flattening/barbell)
                      - Econometric forecasting models

  • Benchmark yield curves

                      - Swap and government (risk-free) yield curves

  • Yield curve modelling and construction

                      - Constructing spot rate (zero coupon) yield curves
                      - Curve fitting and smoothing algorithms
                      - How do we select and construct a stable benchmark curve?

  • Yield curves and fundamental value

                     - Using yield curves for bond pricing and relative value analysis
                     - Identifying ‘cheap’ and ‘expensive’ securities; trade identification

  • Implied forward rates

                    - Deriving the term structure of implied forward rates
                    - Interpretation and applications of implied forward rates
                    - Using forward rates to identify trading opportunities
                    - Using forward rates in horizon analysis
                    - Understanding and profiting from forward rate bias

Portfolio Management Strategies

  • Passive and active investment strategies
  • Passive management – Indexation

                    - Portfolio construction methods:
                              - Full replication
                              - Optimised sampling
                    - Factor analysis in index replication
                               -  Hedge Fund replication
                    - Sources of tracking error in passive management
                    - Alternative techniques for Beta replication:
                                   - Exchange Traded Funds (ETFs)
                                   - Derivatives and Structured Products
                                   - Tradable indices (passive and active)

  • Active Management

                           - Alpha () : Active risk and return
                           - Separation of Beta from Alpha: Portable alpha techniques
                           - Portfolio optimization of alpha
                           - Performance measurement and evaluation

  • Structured portfolio strategies

                        - ALM and Liability driven investment strategies
                        - Total return strategies
                        - Immunisation
                                - Risks in immunisation
                                - ‘Horizon matching’ strategies

Day 4


Bond Portfolio Management Trading Simulation – Day 4
 

  • Real-time portfolio revaluation and performance analysis

  • De-brief and Market analysis

  • Trading: Retention or adjustment of active strategies within portfolio risk constraints

  • Using credit derivatives in implementation of active strategies 

Active Fixed Income Portfolio Management Strategies

  • Fixed income portfolio active management strategies
  • Bond portfolio management strategies:

                        - Macro strategies
                                - Directional rates and RV rates
                        - Quantitative strategies

  • Carry strategies
  • Interest rate strategies

                         - Directional: Duration extension/contraction
                         - Relative value: Duration neutral - Slope and Convexity trades
                                           - Bullet/barbell and ladder portfolios
                         - Strategy formulation
                                           - Fundamental value
                                           - Macroeconomic environment
                                           - Market sentiment
                           - Strategy execution
                                           - Implementing parallel, slope and convexity trades
                                           - Constraints of long only, cash only restrictions
                             - Horizon analysis in active strategies
                                             -  ‘Roll down and carry’
                                             - Carry trades

  • Active Credit strategies:

                              - Sector rotation
                               - Security selection
                               - Pairs (long/short) trading
                               - Curve trades
                               - Directional and RV strategies

  • Other fixed income active strategies

                                - Bond swaps and switches
                                 - Yield pick-up, quality pick-up trades

Case Study:  Implementation of duration neutral slope and convexity trades; calculation of position ratios within specified risk budget/tracking error

Case Study:  Impact of portfolio convexity on performance under parallel and non-parallel curve
     shifts. Analysis of interest rate volatility and portfolio convexity.

Interest Rate Derivatives in Bond Portfolio Management

  • Interest Rate Derivatives

                     - Listed and OTC derivatives
                     - Bond futures
                     - Interest rate swaps and basis swaps

  • Bond Futures

                      - Operational mechanics of trading bond futures
                      - The role of the clearing house; margin (initial, variation, netting facilities)
                      - Bond futures contract types and specifications
                      - Pricing bond futures; relationship to cash markets; conversion factors; CTD; basis
                      - Interest rate risk: calculating interest rate risk for bond futures

  • Interest rate and Currency Swaps

                       - Swap mechanics
                   - Nomenclature, terminology and market quotation and execution methods
                       - What are the drivers of swap rates?
                       - Pricing and valuation of interest rate swaps
                       - Risk characteristics (DV01, Duration)
                       - Execution, clearing and settlement mechanics
                       - Documentation and legal issues

  • Applications of interest rate derivatives in bond portfolio management 

                        - Hedging interest rate risk
                                 - Duration management using interest rate derivatives
                                 - Basis risks
                        - Active Interest Rate Strategies Using Swaps and Bond Futures
                                   - Interest rate swaps/bond futures as a substitute for fixed income bond investment
                                   - Macro rates and relative value strategies
                                   - Benefits of separating liquidity from interest rate risk management
                                   - Limitations and constraints on implementation in long only portfolios
                                   - Costs and benefits of derivatives in implementing active management strategies


Day 5


Bond Portfolio Management Trading Simulation – Day  

  • Simulation workshop conclusion and results
  • Performance and attribution analysis of portfolios
  • Review and de-brief
  • Presentation and award of prizes

Asset Swaps and Credit Derivatives 

  • Asset Swaps

                     - Relative value analysis
                     - Government spreads Vs. ASW, Z-spread
                     - Interpreting and understanding asset swap spreads
                                   - Spread determinant and drivers
                                   - Using asset swap pricing in RV analysis

  • Credit Default Swaps (CDS)
  • Definitions, nomenclature and market conventions
  • Credit Events definitions
  • Settlement mechanisms
  • Single asset and basket swaps
  • Credit indices (iTRAXX, CDX)
  • Index CDS
  • Standardised contract terms
  • Transaction and settlement mechanics 
  • Pricing and valuation of credit default swaps
  • CDS risk characteristics

                        - Calculating spread risk of credit default swaps (Spread duration, DV01)
                        - Counterparty credit risk
                        - Operational risks

  • Understanding the relationship between CDS premia and Asset swap spreads

                         - Determinants of the (Asset swap - CDS) basis

Credit Derivatives in Bond Portfolio Management

  • Active credit trading strategies using credit derivatives

                          - Directional and relative value trading strategies
                                   - Sector selection
                                   - Securities selection
                                   - Curve trades
                                   - Constraints and limitations on implementation in ‘long only’ portfolios
                           - Leverage
                           - Creating synthetic ‘long’ and ‘short’ credit risk exposure

  • Hedging portfolio credit risk exposure

                             - Basis risks between CDS and corporate bonds
                             - Tracking error considerations

Performance Measurement and Attribution

  • Performance measurement

                    - Measurement of returns
                                 - Standardised performance calculation, presentation and reporting standards
                                 - Summary of Global Investment Performance Standards (GIPS) (2010)
                     - Relative (active) returns: Beta () and alpha ()
                                  - Selection of appropriate benchmarks for comparison (index, risk-free rate)
                                  - Calculation of benchmark relative returns (excess returns)

  • Review of performance attribution models
  • Fixed income attribution analysis
  • Yield curve theories

                         - Implied forward rates
                         - Horizon analysis: Carry and break-even returns

  • Portfolio risk decomposition using key rate duration
  • Benchmark relative analysis
  • Weighted duration analysis

                            - Yield curve analysis (shift, twist and curvature (Butterfly)) attribution
                             - Parallel and non-parallel curve exposure attribution
                             - Spread (credit)
                             - Carry and roll-down contribution

  • Yield curve decomposition

Case Study:  Practical exercise; Attribution analysis of bond portfolio

Course summary and close

 

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