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BloombergWealth Management
SolutionsSolutionsJohn Bridge, CFA
ECONOMIC IMPROVEMENT
FIXED INCOME TRADING
AGENDA11
2
FIXED INCOME VALUATION FOR STRUCTURED ASSETS
PORTFOLIO RISK MANAGEMENT
3
4
Changes in the housing market, debt and savings rates, as well as borrowing and lending liquidity have
1ECONOMIC IMPROVEMENT
borrowing and lending liquidity have altered the wealth management landscape. They are now showing signs of improvement
Fixed Income Trading Fixed Income Valuation Portfolio Risk ManagementEconomic Improvement
Housing Market Turn?
Case Shiller 10 city housing price index
New Home Sales
Existing Home Sales
Fixed Income Trading Fixed Income Valuation Portfolio Risk ManagementEconomic Improvement
First increase in housing prices since June 2006
Consumer Debt and Personal Savings
Consumer debt has dropped for the first time since 1992
Personal Savings are at an all time high.
1992
Fixed Income Trading Fixed Income Valuation Portfolio Risk ManagementEconomic Improvement
Overnight Index SwapOIS spread hovered around 8 basis points from 2001 to July of 2008.
Spread hit an all time high of 364 basis points on 10/10/08.
Lending liquidity between banks is improving
Fixed Income Trading Fixed Income Valuation Portfolio Risk ManagementEconomic Improvement
We are now below 30 basis points
Find bonds that have been issued or trade under the various rescue programs so that you can take
2FIXED INCOME TRADING
programs so that you can take advantage of government sponsored guarantees and meet due diligence requirements by ensuring that you are quoted a fair price.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Bloomberg Bailout and Rescue Program Transparency Menu
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
TARP and Temporary Liquidity Guarantee Bonds
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Live Execution for FDIC Guaranteed Bonds
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
MSRB and TRACE reporting
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
The potential overhaul of regulatory oversight is heightening the awareness and importance of fiduciary responsibility. Proper and detailed valuation methods for structured products are
3FIXED INCOME VALUATION
valuation methods for structured products are critical to due diligence. Bloomberg has the proper tools that you need to value MBS and structured notes so that you meet or exceed these requirements.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
RMBS structured pay down withoutloss assumptions
Historical Constant Default rate is 12.98, loss severity is 27.18.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
RMBS structured pay down with loss assumptionsModel
losses using 13% annual default rate, and a 30% severity.
2A1 loses 2.12% with first loss in March 2013.
2A2 loses 23.35% with first loss date in June 2011
Reasonable default and severity assumptions produce very different return results.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
“Super Yield Table” stratifies the collateralPerform loss
analysis by varying loss assumptions for subsets of your collateral. In this case, we are using
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
are using days delinquent.
Select all loans with a debt service coverage ratio < 1.2.
Resulting loans with a debt service coverage ratio < 1.2.
CMBS Advanced Scenarios
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
CMBS Advanced Scenarios
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Three independent loan groups with custom loss assumptions
CMBS Advanced ScenariosStructure Pay down
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Bloomberg’s Structured Notes Menu
Structure, price, and search for equity, fx, interest rate structured notes.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
“Capital Protected” Structured Note
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
The potential overhaul of regulatory oversight is heightening the awareness and importance of fiduciary responsibility. Proper and detailed valuation methods for structured products are
4Portfolio Risk Management
valuation methods for structured products are critical to due diligence. Bloomberg has the proper tools that you need to value MBS and structured notes so that you meet or exceed these requirements.
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Portfolio Slice and Dice
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Portfolio Slice and DiceIndustry and Single Security Breakdown
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Portfolio Slice and DiceDistribution
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Key Rate DurationIndustry Breakdown
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Key Rate DurationSingle Security Breakdown
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Value at RiskIndustry Breakdown
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Value at RiskIndustry Breakdown
Economic Improvement Portfolio Risk ManagementFixed Income Trading Fixed Income Valuation
Questions?Questions?
Portfolio Risk ManagementFixed Income ValuationFixed Income TradingEconomic Improvement