Frank J. Fabozzi - Bond Markets, Analysis, and Strategies, tenth edition

Bond Markets, Analysis, and Strategies

Tenth Edition

Frank J. Fabozzi

Francesco A. Fabozzi

The MIT Press

Cambridge, Massachusetts

London, England

2021 Massachusetts Institute of Technology

All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.

The MIT Press would like to thank the anonymous peer reviewers who provided comments on drafts of this book. The generous work of academic experts is essential for establishing the authority and quality of our publications. We acknowledge with gratitude the contributions of these otherwise uncredited readers.

Library of Congress Cataloging-in-Publication Data

Names: Fabozzi, Frank J., author. | Fabozzi, Francesco A., author.

Title: Bond markets, analysis, and strategies / Frank J. Fabozzi, Francesco A. Fabozzi.

Description: Tenth edition. | Cambridge, Massachusetts : The MIT Press, [2021] | Includes index.

Identifiers: LCCN 2021000485 | ISBN 9780262046275 (hardcover)

Subjects: LCSH: Bonds. | Investment analysis. | Portfolio management. | Bond market.

Classification: LCC HG4651 .F28 2021 | DDC 332.63/23dc23

LC record available at https://lccn.loc.gov/2021000485

d_r1

FJF

To the memory of my parents, Josephine and Alfonso Fabozzi

FAF

To my mother, Donna Fabozzi

1. 
   PriceYield Relationship for a 20-Year 10% Coupon Bond
2. 
   Shape of PriceYield Relationship for an Option-Free Bond
3. 
   Time Path for the Price of a 20-Year 10% Bond Selling at a Discount and Premium as It Approaches Maturity
4. 
   Creation of an Inverse Floater
5. 
   Calculation of the Discount Margin for a Floating-Rate Security
6. 
   PriceYield Relationship for Six Hypothetical Bonds
7. 
   Shape of PriceYield Relationship for an Option-Free Bond
8. 
   Instantaneous Percentage Price Change for Six Hypothetical Bonds
9. 
   Price Change for a 100-Basis-Point Change in Yield for a 9% 25-Year Bond Trading at Different Yield Levels
10. 
    Calculation of Macaulay Duration and Modified Duration for 5-Year 9% Bond Selling to Yield 9%
11. 
    Calculation of Macaulay Duration and Modified Duration for 5-Year 6% Bond Selling to Yield 9%
12. 
    Four-Bond Portfolio
13. 
    Calculation of Contribution to Portfolio Duration for Four-Bond Portfolio
14. 
    Sector Distribution and Contribution to Duration for a Portfolio
15. 
    Sector Distribution and Contribution to Duration for the Barclays Capital U.S. Aggregate Index
16. 
    Measures of Bond Price Volatility and Their Relationships to One Another
17. 
    Line Tangent to the PriceYield Relationship
18. 
    Price Approximation Using Duration
19. 
    Calculation of Convexity Measure and Dollar Convexity Measure for 5-Year 9% Bond Selling to Yield 9%
20. 
    Calculation of Convexity Measure and Dollar Convexity Measure for 5-Year 6% Bond Selling to Yield 9%
21. 
    Annualized Convexity Measure and Annualized Dollar Convexity Measure for Our Six Hypothetical Bonds
22. 
    Comparison of Convexity of Two Bonds
23. 
    Change in Duration as the Required Yield Changes
24. 
    Key Rate Durations for Three Treasury Portfolios (March 22, 2006)
25. 
    Hypothetical U.S. Treasury Security Yields
26. 
    Three Shapes That Have Been Observed for the Yield Curve
27. 
    Maturity and Yield to Maturity for 20 Hypothetical Treasury Securities a
28. 
    Theoretical Spot Rates
29. 
    Determining the Theoretical Value of a 10% 10-Year Treasury Security Using the Theoretical Spot Rates
30. 
    Two Alternative 1-Year Investments
31. 
    U.S. Treasury Yield Curve for Five Selected Dates a
32. 
    Theories about the Term Structure of Interest Rates
33. 
    Summary of Corporate Bond Ratings Systems and Symbols
34. 
    Commercial Paper Ratings a
35. 
    Simple, Typical CLO Capital Structure
36. 
    Fitch Recovery Rating System
37. 
    Hypothetical 1-Year Transition Matrix
38. 
    Creation of a Municipal Inverse Floater
39. 
    Central Government Debt Securities Outstanding as of the Fourth Quarter of 2018
40. 
    Amortization Schedule
41. 
    Breakdown of Residential Mortgage Loan Market and the Sectors of the RMBS Market
42. 
    Graphic Depiction of 100 PSA
43. 
    Monthly Cash Flow for a $400 Million, 7.5% Pass-Through Rate with a WAC of 8.125% and a WAM of 357 Months Assuming 100 PSA
44. 
    Monthly Cash Flow for a $400 Million, 7.5% Pass-Through Rate with a WAC of 8.125% and a WAM of 357 Months Assuming 165 PSA
45. 
    Example of an S-Curve for Prepayments
46. 
    Average Life of a Pass-Through Based on Different PSA Prepayment Assumptions
47. 
    FJF-01: Hypothetical Four-Tranche Sequential-Pay Structure a
48. 
    Monthly Cash Flow for Selected Months for FJF-01 Assuming 165 PSA
49. 
    Average Life for the Collateral and the Four Tranches of FJF-01
50. 
    FJF-02: Hypothetical Four-Tranche Sequential-Pay Structure with an Accrual Bond Class a
51. 
    Monthly Cash Flow for Selected Months for Tranches A and B of FJF-02 Assuming 165 PSA
52. 
    FJF-03: Hypothetical Five-Tranche Sequential-Pay Structure with Floater, Inverse Floater, and Accrual Bond Classes a
53. 
    Monthly Principal Payment for $400 Million 7.5% Coupon Pass-Through with an 8.125% WAC and a 357 WAM Assuming Prepayment Rates of 90 PSA and 300 PSA
54. 
    FJF-04: CMO Structure with One PAC Bond and One Support Bond a
55. 
    Average Life for PAC Bond and Support Bond in FJF-04 Assuming Various Prepayment Speeds (%)
56. 
    FJF-05: CMO Structure with Six PAC Bonds and One Support Bond a
57. 
    Average Life for the Six PAC Bonds in FJF-05 Assuming Various Prepayment Speeds (%)
58. 
    Effective Collars for Each PAC Tranche in FJF-05
59. 
    Average Life for PAC Tranches of FJF-05 One Year from Now Assuming Various Prepayment Speeds for the First 12 Months
60. 
    Average Life Two Years from Now for PAC Bond of FJF-04 Assuming Prepayments of 300 PSA for First 24 Months
61. 
    FJF-06: Hypothetical Five Tranche Sequential Pay with an Accrual Tranche and an Interest-Only Tranche a
62. 
    Selected Pages from the Offering Circular Supplement for Ginnie Mae REMIC Trust 2008-004
63. 
    Selected Pages from the Ginnie Mae Guaranteed Pass-Through Securities Base Offering Circular, October 1, 2004
64. 
    Ginnie Mae Class-Naming Conventions for Multiclass Securities
65. 
    Relationship between Price and Mortgage Rates for a Pass-Through, PO, and IO
66. 
    The PSA SDA Benchmark (100 SDA)
67. 
    National Bank Commercial Mortgage
68. 
    Page from Prospectus Supplement for DaimlerChrysler Auto Trust 2007-A Summarizing the Transaction
69. 
    Page from Prospectus Supplement for DaimlerChrysler Auto Trust 2007-A Showing for Different ABS Percentages the Percent of Note Principal Amount for the Senior Bond Classes by Payment Date
70. 
    Five Largest Bond ETFs
71. 
    Two Classifications of Bond ETFs
72. 
    Selected Sector Classifications and the Two Largest ETFs in U.S. dollars (as of August 14, 2020)
73. 
    Classification Based on Duration and the Largest ETF for Each in U.S. dollars (as of August 14, 2020)
74. 
    Aggregate Trade Information for TRACE-Eligible Securities