Training Courses > Debt Markets

Introduction to Debt Markets, (Two Days)

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This course is about bond markets and will explain the following:

• How bonds work and the terms used in bond markets
• The process of asset liability management
• The issuance process & all in costs
• How swaps are used with bonds from both an asset and liability perspective
• The risks that bonds contain
• Structured bonds, what they are and how they work
• How credit derivatives and collateralized debt obligations work
• How & why CDOs have altered issuers & investors use of bond markets

Training will be in a workshop format. This will include a mixture of presentation and case study material.

Below is a summary of the workshop content. Both days have been placed in a logical sequence and address the main products, motivations and risks from a practical perspective. Prior knowledge of debt markets is not required.

Day One

Bond Terminology & Structures

• Interest calculations and day count conventions
• The cash-flow structure of bonds
• Fixed coupon securities
• Floating rate notes
• Zero coupons bonds
• Flexibility of medium term notes
• Where to find static data
• The importance of ratings

Why Issuers use bond markets

• The different issuers of bonds
• Liability management
• The difference between long & short term financing needs
• Relative cost of funding
• Diversification of funding sources
• Regulatory requirements

Why investors buy bonds

• Different types of investor
• Asset management
• Different risk/reward needs
• Credit, interest rate, foreign exchange risks
• How investors identify value
• Relative value/spreads
• Liquidity

The Issuance Process

• Market conditions
• Selecting the appropriate bond structure
• Issue size
• Role of the manager
• Fees
• The all in cost of funds

Interest rate swaps & currency swaps

• How IRS & CCY swaps work
• How swaps are priced and traded

Using swaps with bonds

• How interest swaps are used with new issues
• Calculating all in costs
• How currency swaps are used with new issues
• Calculating the all in cost
• Influence of the basis swap on pricing

Day Two

Bonds and market risk

• Introduction to why bond prices change:
• Credit risk
• Interest rate risk
• Simple measures for interest rate risk

Asset swaps

• How fixed coupon bond are swapped
• The Libor based return
• Up-front premium payments

Structured bonds

• Why investors buy them
• The advantages to the issuer
• What the dealer gets
• Documentation
• Selected classic structured bonds ­how they work

Credit default swaps, (CDS)

• How a CDS trade works
• What the premium is
• The main terms used
• Risk transfer for structured transactions

Collateralised debt obligations & structured debt

• Market background
• Why these deals are being originated from both an asset and liability perspective
• How these transactions work
• The key terms used including: collateral, ramping, issuing vehicle, (SPV), tranches, (senior, mezzanine, equity), ratings, attachment points and subordination, waterfalls, diversification, role of the manager and rating agency

Transaction examples including:

1. Cash CDO
2. Synthetic CDO
3. CDO squared

End of workshop & review