Flashcards
Fixed Income
Cards in this deck (24)
- 1What is the difference between floating rate notes, index linked bond and variable rate notes?A floating-rate note has a coupon rate based on a market-determined reference rate such as 90-day LIBOR. Typically the coupon rate will be stated as a margin above the reference rate. A variable-rate note has a margin above the reference rate that is not fixed over the life of the note. An index-linked bond has a coupon payment or principal amount that adjusts based on the value of a published index such as an equity market, commodity, or inflation index.
- 2Define a National bond marketIncludes domestic bonds and foreign bonds
Domestic bonds have a domestic issuer and currency.
Foreign bonds have a foreign issuer and domestic currency. - 3Define Eurobond marketmarket is outside any one country, with bonds denominated in currencies other than those of countries in which bonds are sold.
- 4Define Global bondsTrade in both a national bond market and a eurobond market
- 5Underwritten bond offeringInvestment banks buy entire issue and sell to public
- 6Best efforts bond offeringInvestment banks act as brokers.
- 7Shelf registration (bond offering)Register entire issue with regulators but sell over a period of time
- 8What are characteristics of a callable option?Issuer may repay principal early.
Increases yield.
Decreases duration. - 9What are characteristics of a putable option?Bondholder may sell the bond back to the issuer.
Decreases yield.
Decreases duration. - 10What are characteristics of a convertible option?Bondholder may exchange bond for issuers common stock.
(Contingent convertible bonds are bonds that convert to equity of a specific event occurs) - 11What are characteristics of a embedded warrants?Bondholder may buy issuer's common stock at exercise price.
- 12G-spreadbasis points above government yield
- 13I-spreadBasis points above swap rate
- 14Z-spreadAccounts for shape of yield curve
- 15Option-adjusted spreadAdjusts Z-spread for effect of options
- 16What are the characteristics of Residential MBS?Home mortgages are collateral.
Agency RMBS only include conforming loans.
Non-RMBS may include non-conforming loans and need credit enhancement. - 17What are the characteristics of Prepayment risk in ASBsContraction risk from faster repayments
Extension risk from slower repayments - 18What are the characteristics of collaterised mortgage obligations in ASBsPass-through MBS are collateral
May have sequential pay or PAC/support strucutre - 19What is the collateral for Commercial MBSNon-recourse mortgages on commercial properties.
- 20What is collateral on Auto and credit card ABS?Auto loans
Credit card loans - 21What is the collateral on CDOs?Bonds, bank loans, MBS, ABS, or other CDOs
- 22Define internal vs external credit enhancementInternal credit enhancement includes excess spreads, overcollateralization and waterfall structures.
External credit enhancements include surety bonds, letters of credit and bank guarantees. - 23What are the four Cs of credit rating analysis?Capacity
Collateral
Covenants
Character - 24Define Loss severity, Expected loss and Recovery rateLoss severity = Percent of value lost if bond defaults
Expected loss = Default risk x Loss severity
Recovery rate = 1 - Expected loss
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- Business Analyst CFA Flashcards on Fixed Income, created by Henry Lynch (NZ) on 20/10/2021.
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- Henry Lynch (NZ)
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