固定收益串讲.ppt
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1、 FIXED INCOME Study Session 14,15 Valuation Concepts AND Structured Securities2011年5月8日杨 凌Readings 51:General Principles of Credit AnalysisReadings 52:Liquidity Conundrum Readings 53:Term Structure and Volatility of Interest RateReadings 54:Valuing Bonds with Embedded OptionsReadings 55:Mortgage-Bac
2、ked Sector of the Bond MarketReadings 56:Asset-Backed Sector of the Bond MarketReadings 57:Valuing Mortgage-Backed and Asset-Backed securities 1 华章仁达华章仁达 Credit RiskSpread widening will push price lowerRisk that Issuer will defaultRating agencies lower the ratingsSPREADDefault RiskDefault RiskCredit
3、 Spread RiskCredit Spread RiskDowngrade Risk51.a2 华章仁达华章仁达 Traditional Credit Analysis-4 Cs51.bIndustry trendsThe regulatory environmentBasic operating and competitive positionFinancial position and sources of liquidityCompany structure Parent company support agreementsSpecial event riskStrategic di
4、rectionFinancial philosophyConservatismTrack recordSuccession planningControl Affirmative Covenants Negative CovenantsCapacityCollateralCovenantsCharacter3 华章仁达华章仁达 Capacity -Traditional RatiosProfitability RatiosDebt and CoverageROE,ROA,Profit MarginAsset TurnoverShort-term solvency ratios (Current
5、 ratio,Acid-test ratio)Capitalization ratios(leverage)(Long-term debt and total debt)Coverage Ratios(EBIT,EBITDA,funds from operations/total debt,free operation CF)Capacity -Traditional Ratios51.c,d4 华章仁达华章仁达 Debt Service Coverage ratio(DSC)=Capacity -Cash flow AnalysisCash Flow RatiosDebt Payback P
6、eriod(DPP)=51.d,eLedd Computers is currently rated“A”,which of the following statements best describes Ledds position concerning a ratings change?5 华章仁达华章仁达 Credit Analysis-HY BondxDebt structureCorporate structurenCovenantsnEquity approach is used Bank debt Floating,Short-term and Senior Brokers lo
7、ans or bridge loans Reset notes Senior debt Senior subordinated debt Subordinated debt(payment in kind bonds)Holding Company structure Analysis on subsidiaries is important51.f6 华章仁达华章仁达 Credit Analysis-ABSCredit Quality of Collateral Most important issue for ABS Underling borrowers ability Concentr
8、ation risk-Diversification Credit enhancement Seller/Servicer quality The role of servicer track record,experience,servicing capacity,financial strength,etc.True securitization vs hybrid transaction quasi-corporate approach on servicerCash flow stress and Payment structure scenarios analysis used Lo
9、ss estimation to determine the rating Legal Structure Better rating then corporate bond SPV mechanism Key:protect the buyer of ABS from having a bankruptcy judge redirect the collateral to the creditors of the selling corporation 51.g-j7 华章仁达华章仁达 Tax-backed Debt structure,budget policy,local tax and
10、 intergovernmental revenue availability and socioeconomicRevenue-BackedLimits of the Basic SecurityFlow-of-Funds structureRate or user charger,covenantsPriority-of-revenue claimsAdditional-bond TestOther relevant Covenants Credit Analysis-MunisSimilarity1.Character 2.Capacity51.h-j8 华章仁达华章仁达 Credit
11、Analysis-Sovereign Bondsn Economic risk-Capacityn Political Risk-Charactern Local currency debt rating domestic government policiesn Foreign currency debt ratings-interaction of domestic and foreign govnt policies51.i-j9 华章仁达华章仁达 Liquidity Conundrum“Liquidity is a state of mind”Liquidity is not a fi
12、xed pool of MoneyThe greater risk appetite,the greater liquidityThe alignment or misalignment of the 2 investors determines the abundance or shortage of liquidity52.abc“Stability is destabilizing”HedgeSpeculativePonziMinsky Journey Free at-the-money call on the property granted to the borrower10 华章仁
13、达华章仁达 Yield Curve Changes-Parallel&Non ParallelParallel ShiftNon-Parallel Shift53.ab3 Factors driving USTs return:1.Level change-90%2.Slope change-8.5%3.Curvature change-1.5%11 华章仁达华章仁达 Treasury Spot Rate CurveIn selecting the universe of securities used to construct a default-free spot rate curve,o
14、ne wants to make sure that the yields are not biased by any of the following:(1)default,(2)embedded options,(3)liquidity,and(4)pricing errors.53.c12 华章仁达华章仁达 Why use Swap Curve?There is almost no government regulation of the swap market.The lack of government regulation makes swap rates across diffe
15、rent markets more comparable.The supply of swaps depends only on the number of counterparties that are seeking or are willing to enter into a swap transaction at any given time.Since there is no underlying government bond,there can be no effect of market technical factors that may result in the yiel
16、d for a government bond issue being less than its true yield.The credit risk as reflected in the swaps curve are similar and make comparisons across countries more meaningful than government yield curves.There are more maturity points available to construct a swap curve than a government bond yield
17、curve.More specifically,what is quoted in the swap market are swap rates for 2,3,4,5,6,7,8,9,10,15,and 30 year maturities.Reason 1Reason 2Reason 3Reason 453.d13 华章仁达华章仁达 Pure Expectation Theoryn Forward rates are solely a function of expected future spot rates.i.e long-term interest rates equal the
18、mean of future expected short term ratesn Drawbacks-It neglects the risks inherent in investing in bonds.(Price Risk/reinvestment Risk)-Broadest interpretation didnt give explanation but local interpretation explains that return will be same over a short-term investment horizon starting today if for
19、ward rates realized.nForward Rates can be viewed as Break-even RatesLock-in RatesMarket consensus of future ratesTheory of Term Structure-Pure Expectation53.e14 华章仁达华章仁达 Theory of Term Structure -Liquidity and preferred HabitatLiquidity TheoryPreferred Habitat Theoryn Forward rates are reflecting in
20、vestors expectations of future spot rates plus a liquidity premium.This liquidity premium is positively related with maturity.Implication:If yield curve is upward sloping,short-term rates are expected to rise OR rates are expected to remain constant(or even fall),but the addition of the liquidity pr
21、emium results in a positive slopen Forward rates are reflecting investors expectations of future spot rates plus a premium.This premium is not directly linked to liquidity.n The premium is a compensation for lenders or borrower to move out of their preferred habitats,the premiums are related to supp
22、ly and demand at various maturities.n The premium is a positive or negative risk premium related to supply and demand for funds at various maturities,not necessarily a liquidity premium.The risk premium is not necessarily related to maturity Implication:This theory can explain any kinds of yield cur
23、ve shape 53.e15 华章仁达华章仁达 53.fKey Duration-Yield Curve RiskKey duration and Duration for a portfolio16 华章仁达华章仁达 Yield VolatilityHistorical Volatility calculation53.gAnnualized Standard Deviation=17 华章仁达华章仁达 nImplied yield volatility is the yield volatility that,when used as input into the option pric
24、ing model,would produce the observed option pricenForecasting Volatility using historical datalMoving averagelZero value for expected changes,thus lGiving different weightImplied Volatility and Forecasting53.g18 华章仁达华章仁达 Bond Valuation OverviewSpread measure BenchmarkReflects compensation forNominal
25、Treasury yield curveCredit risk,liquidity risk,option riskZ-spreadTreasury spot rate curveCredit risk,liquidity risk,option riskOASTreasury spot rate curveCredit risk,liquidity risk54.abNominalSector yield curveCredit risk,liquidity risk,option riskZ-spreadSector spot rate curveCredit risk,liquidity
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