Fundamental Bond Strategies

This one day course will provide participants with a framework to formulate fundamental strategies in the government bond markets. It considers the setting of short-term interest rates by central banks, the macro drivers of bond yields and the behaviour of the yield curve through the business cycle. Some prior knowledge of bond market pricing is assumed. Active participation in a workshop setting is encouraged.

June 26, 2015
Duration: One day (9.00am to 5.00pm)
Location: Apex City of London Hotel – London, UK
Trainer: Andrew Bevan
Course fee: £1195 + VAT – Register online

Course Outline

Macro Fundamentals of Bonds – Morning Session 1

+ Which economic indicators move bond markets?
+ Real and nominal interest rates
+ Real interest rates, the business cycle, growth and the return on capital
+ Flow of funds – demand for and supply of credit
+ Equilibrium or 'natural' real rate of interest
+ Nominal interest rates and inflation expectations
+ Par yields, spot rates and forward rates
+ Bond yields as the expected path of short rates plus a risk premium
+ Interest rates in an open economy
+ Empirical properties of bond market behaviour
+ What should we be watching?

Macro Fundamentals of Bonds – Morning Session 2

+ How central banks set short-term interest rates
+ Targets and instruments of monetary policy
+ Modern framework of central bank policy – inflation targeting
+ Inflation and the 'output gap' – excess demand
+ Operation of rules versus discretion – the Taylor Rule
+ Monitoring the major central banks
+ Market-based measures of policy expectations
+ Risk, uncertainty and behaviour of the term premium
+ Fiscal policy and the supply of government bonds
+ Budget deficits and the sustainability of debt
+ Current assessment of sovereign debt risk
+ Are public finances unsustainable in Europe?
+ WORKSHOP: Spot Rates and Forward Rates

Instruments and Strategies – Afternoon Session 1

+ Bond pricing – commonly used yield measures
+ Accrued interest and day count conventions
+ Fitting the yield curve – alternative approaches
+ Theories of the term structure
+ Repurchase agreements – funding and leverage
+ 'Carry' and forward pricing
+ Price sensitivity measures – duration and convexity
+ Horizon return analysis
+ Index-linked bonds and traded real yields
+ WORKSHOP: Bond Pricing and Return Analysis

Instruments and Strategies – Afternoon Session 2

+ Relative value trading – identifying switch opportunities
+ Riding the curve – 'carry' and 'roll-down'
+ Curve slope trading – duration weighting
+ Butterfly/Barbell – proceeds and/or duration matched
+ 'Breakeven' inflation – nominal versus real bonds
+ Sovereign spread trading
+ Current views