Fixed Income Forwards, Futures and Swaps

This course provides an introduction to fixed income derivatives.

It begins by discussing short term exposures using Forward Rate Agreements (FRAs). Bond futures are explained, and the concept of the Cheapest to Deliver (CTD) bond is introduced. Longer term interest rate exposures are introduced through Interest Rate Swaps (IRS). The structure, cashflow, DV01 and the pricing implications are explained as well as the operational elements of fixing and settlement.

Finally, participants will look at the process of pricing a swap using the other financial instruments and the yield curve.

Suitability

This course is for individuals with a working knowledge of the bond and derivative markets.

Learning Outcomes

At the end of this course delegates should understand:

The key components of the fixed income forward and futures market
The characteristics, uses and DV01 of interest rate swaps
How to price interest rate swaps

Course Content

Forward Rate Arrangements (FRAs)

Characteristics and terminology
Hedging with FRAs

Fixed income futures

STIR futures and IMM dates
Bond futures and conversion factors
The Cheapest-to-Deliver (CTD) and implied repo

Exercises: Identifying the CTD from a basket of bonds Interest Rate Swaps (IRS)rn

IRS cash flows, pricing, quotation and term sheet parameters
Fixing process and settlement
Currency and tenor basis swaps
Corporate hedging and Liability-Driven Investing (LDI)

Exercises: Trade recommendations for corporate issuance and hedging Swap DV01

Fixed/floating bond methodology
FRN DV01

Exercises: Calculating notional sizes of swaps required for DV01 neutral swaps trades Pricing Swaps

Pricing a swap using spots and forwards VS using STIRs
Building swap curves
OIS discounting, tenor basis and convexity adjustment

Exercises: Valuing a swap intuitively, pricing and valuing a swap using spots and forwards and compounding forward rates

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