Introduction to Fixed Income Analytics: Relative Value Analysis, Risk Measures, and Valuation, Second Edition

Preface

Participants in the fixed income market are inundated with terms and concepts in both the popular press and, more typically, in research reports and professional journal articles. Making life more difficult for professionals in this market sector is the fact that for some important analytical concepts, the same concept is referred to in different ways by different dealer firms and asset management firms. The purpose of this book is to describe the key analytical concepts used in the fixed income market and illustrate how they are computed. The book is not only intended for professionals but also newcomers to the field. It is for this reason that we provide end of chapter questions.

Although market professionals often want a walk through demonstration of how a metric is computed, once they are comfortable with the concept and its computation, professionals then rely on vendors of analytical systems. Probably the most popular system relied upon by fixed income professionals is the Bloomberg System. For this reason, every chapter ties in the analytical concepts that are available on Bloomberg and walks the reader through the relevant Bloomberg screens. We want to thank Bloomberg Financial for granting us permission to reproduce the screens that we used in our exhibits.

We begin the book with an explanation of the most basic concept in finance: the time value of money. In Chapter 2, we describe yield curve analysis, discussing the importance of spot rates and forward rates. ...