What Does a GFMI Yield Curve Analysis Course Cover?
Designed for the cash and/or derivative markets, this course examines the shapes, uses, and derivation of yield curves. Construction of curves begins with the benchmark government curve, which is then followed by the derivation of the spot and forward curve. The sources of the data, such as the government or swap curve, and when to use the respective data will also be discussed.
Additionally, more sophisticated techniques for interpolation are explored in this course. This is followed by a discussion on credit and the spreads between corporate bonds and government benchmarks. What are the correct spreads to use when choosing fixed income instruments, the nominal spread, the z-spread, or option adjusted spread (OAS)? These spreads and more are analyzed in this understanding yield curves course.
Yield Curve Analysis Course Objectives
After the completion of this course, participants will be able to:
- Describe the construction and analytical applications of yield curves
- Explain theories regarding the level and shape of yield curves
- Develop the ability to apply yield curves in valuation and analysis of debt securities
- Demonstrate the uses of yield curves in fixed income trading and portfolio management
- Analyze different spread measurements
- Describe LIBOR versus OIS discounting
Prerequisites: Fixed Income, Bond Math or equivalent knowledge
Program Level: Intermediate
Advance Preparation: None
Recommended CPE Credits: 7
- Session 1: Introduction to the Yield Curve will introduce participants to the concept of yield and explore the different types of yield curves, including yield to maturity, spot and forward. An explanation of the shapes and primary influences of the yield curve, including monetary and fiscal policy, inflation, and supply and demand, will be reviewed. Participants will be able to identify the theories of the shape of the yield curve and define the sources of different curves. By this session’s end, participants will be able to identify different yield curve applications used in the fixed income market.
- Session 2: Spot Rate Curves: Construction and Application will cover the construction and application of spot rate curves, and how they are used to assess the relative value of fixed income securities. This session concentrates on the use of spot rate curves to identify over and undervalued securities to enhance returns on fixed income portfolios. After completing this session, participants will be able to apply rich and cheap analysis in the identification of mispriced securities and explain how portfolio managers use that information.
- The focus of Session 3: Forward Rates: Construction and Application is on the construction and application of forward rates. This session details how forward rates and curves are constructed as well as their use in fixed income trading and derivatives pricing. Concentrating on the determination and interpretation of forward rates, this session will allow participants to use forward rates in the analysis of fixed income trades, setting swap coupons, and the valuation of future contracts. Pricing forward starting derivative instruments, such as swaptions, will also be covered.
- In the final session of the course, Session 4: Overnight Index Swaps (OIS) Discounting – The New Paradigm, participants will be introduced to OIS and how to value interest rate swaps using OIS. The participant will be able to calculate OIS discount factors and explain LIBOR-OIS spreads.