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Course Calendar Course Calendar

Fixed Income Markets and Analytics

Day One

Primary Markets

  • DCM and bond issuance
    • Considerations for first time issuers
    • Bonds vs. loans
    • The issuance process – auctions vs. underwritten deals
      • New issue terminology
  • Bond types, structures and market conventions
    • Types of bonds, MTNs
    • Fixed rate bonds vs. FRNs
  • Understanding the yield curve
    • The various yield curves that we look at
    • Drivers of shape and level

Secondary Markets: Pricing and Risk

  • Coupon, price, yield
    • Clean vs. dirty prices, accrued interest calculations
    • Price/yield relationship and PV01
    • The price of liquidity
      • On-the-runs vs. off-the-runs – is there an arb?
  • Bootstrapping the curve
    • Discount curve, zeros and the par curve
      • Pricing a new issue
      • Identifying arbitrage opportunities
    • ‘Coupon-stripping’ and trading US STRIPS

Workshop: Bootstrap a Govt bond curve, and thereby correctly price a new issue

  • Duration, convexity and risk
    • Duration, modified duration and Macaulay duration
      • Duration at the portfolio level
    • From (mod) duration to DV01
    • Using DV01
      • VaR calculations
      • Risk limits
      • Hedging
      • Trade sizing
    • Convexity
      • Monetizing the convexity
      • Convexity as optionality

Workshop: Build a duration-neutral butterfly/barbell portfolio, and calculate the realized convexity

Day Two

Repos and Funding

  • Mechanics of repo
    • Drivers of the repo rate
    • GC and special collateral
    • Tri-party repo agreements
  • Cost of carry and P&L
  • Forward bond pricing and the implied repo rate
  • P&L attribution – trading p&l, carry/funding, rolldown, pull-to-par

Workshop: Detailed analysis of a trading position financed on 1-week repo, analyzing the P&L and allocating P&L between ‘trading profit’ and carry/funding

Bond Futures

  • Mechanics of a bond future
    • Detailed analysis of the EUREX 10yr Bund Future
    • Initial and variation margin, daily MTM
    • Rolling the position, roll P&L
  • Settlement and delivery
    • The eligible deliverables into the contract
    • Conversion factors
    • Economics of delivery – the cheapest-to-deliver
    • Identifying the CTD – highest implied repo
  • Basis trading
    • Gross and net basis
    • Trading the basis
  • Hedging with futures
    • Calculating the Futures DV01

Workshop: Detailed analysis of Jun19 contract on Eurex, compute implied repos and identify the CTD

Corporate Bonds

  • Understanding seniority and creditor claims
    • The bankruptcy process and order of priority
    • Historic default and recovery rates
  • Pricing credit risk
    • Spread, recovery rate and default probability
    • The various credit spreads and how they are related
      • CDS vs. cash-market spreads
    • The role of the ratings agencies
      • Why ratings and spreads can diverge
  • Corporate bond issuance
    • Investment grade and high-yield debt markets
    • Pricing risky bonds
  • Credit trading
    • Spread DV01, CS01 and spread duration
      • Spread duration at the portfolio level
    • Hedging with CDS
      • Hedge default risk or CS01?
      • The CDS-cash basis, trading the basis
    • Asset swaps

Workshop: Constructing a negative-basis trade 

Day Three

Interest Rate Swaps

  • Mechanics of an IRS
  • Intuitive pricing and risk
    • Swaps as synthetic (unfunded) bonds
    • Swaps DV01
  • New issue swaps
    • Why do borrowers swap to floating?
    • The interaction between the swaps desk, DCM and syndicate/sales
    • Identifying funding ‘arbitrage’
  • Asset swaps
    • Par/par vs. market-value structures
    • The significance of the ASW spread, comparison with CDS
  • Duration overlay strategies
    • Portfolio hedging and ‘defeasance’ trades
  • Cross-currency swaps

Workshop: Asset swaps

Structured Notes

  • Callable bonds
    • Structuring a callable with swaptions
      • Terminology
      • Pricing and risk
    • The investor-driven perspective (yield enhancement)
    • Issuing unswapped callables as a hedge for mortgage convexity
  • Capped FRNS, reverse floaters
    • Embedding caps to generate yield enhancement
    • Leveraging the duration – reverse floaters
      • Structuring a reverse floater

Workshop: Structuring a callable bond (a swaption calculator will be provided)

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