Bloomberg Integration in Fixed Income

Bloomberg for Education Seminar

July 21, 2017

San Francisco

Paul Fjeldsted, CFA

Senior Lecturer

Jon M. Huntsman School of Business

Utah State University

Outline

• Rationale

• Class Overview

• Bloomberg Market Concepts

• Problem Sets

• Bloomberg In-Class Integration

• Investing Practicum Integration

Overview

Rationale

Pros

• Connection to practice

• Dynamic

• Robust

Why Bloomberg?

Cons

• Cost

• Interface

Rationale

• 9 desktop licenses in dedicated lab for students

• 3 Bloomberg Anywhere licenses for professors

• Bloomberg Anywhere can be launched in any classroom

Configuration

Fixed Income Course Overview

• 20-25 students, masters level course

• CFA Curriculum integration – Level 1 and

Level 2 Fixed Income volumes

FIN 5300 FIXED INCOME

Fixed Income Course Overview

Exams (4 @ 100 each) 400

Problem Sets 50

Investment Activity 30

In-Class Questions 20

Total 500

Grading

Bloomberg Market Concepts

• Required within first two weeks of semester

• Prerequisite to handing in first problem set

• Overview – high level

• Brings students up to speed on language of finance

Bloomberg Market Concepts

Bloomberg Problem Sets

• Select a bond in Bloomberg

• Model its cashflows in excel

• Replicate price

• Replicate risk measures

Bond Valuation Problem Sets – General Approach

Bloomberg Problem Sets

• In Bloomberg, select US Treasury note or bond with at least 10 years remaining

• Pull up the bond in Bloomberg. Assume $1,000,000 face value

• Type "YA" for yield analysis. Download this page

• Create excel model of the bond. Calculate full price, accrued interest, flat price, duration, modified duration, risk, and DV01

• Turn in Bloomberg YA page and spreadsheet. For full credit spreadsheet should match Bloomberg YA page precisely

Example – US Treasury Note Problem Set

Bloomberg Problem Sets

•

US Treasury Note Screenshot

Bloomberg Problem Sets

US Treasury Note – Excel Model

Bloomberg Problem Sets

US Treasury Note - Side by Side Comparison

Bloomberg Student Spreadsheet

Duration (Macaulay) 8.776 Convexity Calc

Modified 8.672 Change in YTM 0.01%

Risk 8.691 P0 997,808.42

Convexity 0.852 P- 998,677.92

DV01 869 P+ 996,939.77

Face 1,000,000 (P- + P+ ) - 2(P0) 0.854

Full (Dirty) Price 1,002,132.47 Full Price 100.21325

Less Accrued 4,324.05 Convexity 0.852

Flat (Clean) Price 997,808.42

Bloomberg Problem Sets

•

Apple Corp Bond Screenshot

Bloomberg Problem Sets

Apple Corp Bond – Excel Model

Bloomberg Problem Sets

Apple Corp Bond - Side by Side Comparison

Bloomberg Student Spreadsheet

Duration (Macaulay) 4.525 Convexity Calc

Modified 4.472 Change in YTM 0.01%

Risk 4.566 P0 1,015,815.64

Convexity 0.230 P- 1,016,272.33

DV01 457 P+ 1,015,359.19

Face 1,000,000 (P- + P+ ) - 2(P0) 0.235

Full (Dirty) Price 1,020,915.64 Full Price 102.09156

Less Accrued 5,100.00 Convexity 0.230

Flat (Clean) Price 1,015,815.64

Bloomberg Problem Sets

•

Citigroup FRN Screenshot

Bloomberg Problem Sets

Citigroup FRN – Excel Model

CITIGROUP FRN - CUSIP XS1134518312

Face 100

Bloomberg Price 96.793

Last LIBOR Reset 1.18456%

Margin 0.25%

Total Current Coupon 1.43456%

YTM 2.34% Goal Seek

Assumed LIBOR Rate - Future Periods 1.31%

Discount Margin (%) 1.03%

Discount Margin (bp) 103.37

Periods / Year 4

Current Period USD Coupon 0.35864

Future Periods USD Coupon 0.38881

Settlement Date 7/21/2017

Last Coupon 5/10/2017

Elapsed Days 71

Bloomberg Problem Sets

Citigroup FRN - Side by Side Comparison

Bloomberg Student Spreadsheet

Bloomberg Problem Sets

US Treasury TIPS Screenshot

Bloomberg Problem Sets

US Treasury TIPS – Excel Model

Bloomberg Problem Sets

US Treasury TIPS - Side by Side Comparison

Bloomberg Student Spreadsheet

Index Assumptions

Base CPI at Issue Date 218.08532

CPI at last Coupon Date 244.61839

Flat Index Ratio 1.12166

Reference CPI Settlement Date 244.65884

Index Ratio 1.12185

Face Value 1,000

Flat Price 1,166.93

Inflation Accrual 0.19

Principal (Adjusted for Inflation) 1,167.12

Accrued Interest 0.23

Full Price 1,167.35

Inflation Compensation 121.85

In-Class Bloomberg Integration

• Security Finder <SECF> <GO>, Fixed Income, Govt

• Maturity Tab =>Perpetual

• City of Hull, UK 3.5 Perpetual Bond Issued 8/1887

Concept Illustration – Perpetual Bonds

In-Class Bloomberg Integration

• Bring up current 10-year UST <CT10> <GOVT> <go>

• Graph Curves <GC> <GO>

• Add Curve [type in TIP, US Treasury TIPS curve populates]

Concept Illustration – Real vs Nominal Rates

In-Class Bloomberg Integration

• Bring up MBS to be analyzed (cusip 3135AFTA2)

• Yield Table <YT> <GO>

Concept Illustration – MBS Prepayment

In-Class Bloomberg Integration

• Bring up callable bond to be analyzed (cusip XS1568966672)

• Yield and Spread <YAS> <GO>

Concept Illustration – OAS and Z Spread

Course Overview - Practicum

• 10-12 students, masters level course

• Students manage $100K fixed income

portfolio over two semesters

FIN 5470 FIXED INCOME PRACTICUM

Course Overview - Practicum

PRTU

PORT

PTT

FA

DRSK

MRSK

TDH

FIHZ

Bloomberg Integration – Bond Portfolio Management

Portfolio Administration

Portfolio & Risk Analytics

Portfolio Trade Ticket

Financial Analysis

Default Risk

Muni Credit Risk

Trade History

Fixed Income Horizon Analysis

In-Class Bloomberg Integration

• Bring up bond to be analyzed (cusip 94974BNF5)

• Default Risk <DRSK> <GO>

Concept Illustration – Credit Risk Model DRSK

In-Class Bloomberg Integration

• Bring up bond to be analyzed (cusip 631060BP4)

• FI Horizon Analysis <FIHZ> <GO>

Concept Illustration – Horizon Analysis

“Anything you can do

Bloomberg can do better.”

Cordell Hull, USU Huntsman School MSFE Student

section title optional

Thank Youpaul.fjeldsted@usu.edu

Appendix

USD <go> US Treasurys Benchmark Issues

TII <Govt> <go> Listing of all TIPS

C <Corp> <go> Listing of all bonds issued by Citigroup

AAPL <Corp> <go> Listing of all bonds issued by Apple

YA or YAS <go> Yield and Spread Analysis

SECF <go> Security Finder

CT10 <go> Current 10Y US Treasury

GC <go> Graph Curves (yield curve)

YT <go> Yield Table (mortgage backed securities)

PRTU <go> Portfolio Administration

PORT <go> Portfolio Analysis

DRSK <go> Default Risk (corporate)

MRSK <go> Default Risk (muni)

TDH <go> Trade History

FIHZ <go> Fixed Income Horizon Analysis

Bloomberg Fixed Income Pages