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Introductory but challenging course providing a comprehensive overview of the bond lending and financing markets, with focus on the repo trader's perspective. Uses SunGard's Personal Apex software for interactive trading exercise.
What You Will Learn
This introductory/intermediate course provides a comprehensive overview of the fixed income repo product. You will be introduced to the economic motivations of market players and learn the main trading structures, delivery methods, risk elements and documentation. As part of a small group, you will employ alternative trading structures in an extensive case study using SunGard's Personal Apex trading software. You will gain an understanding of the role of the repo desk as the 'hub' of the fixed income trading floor. You will learn what factors drive demand to borrow specific securities and create 'specials' in the market through a review of the main bond trading strategies.
Is This Course Right For You?
This course is aimed at repo traders, salespeople, account managers, and credit analysts interested in the fixed income repo product and market. It offers a look into the mechanics and strategies of bond financing for those in the Equity Financing, Bond Financing, Prime Brokerage, and Securities Financing departments of banks and securities firms. The pie chart below shows the different sectors represented by previous attendees:
Course categories:Debt / Fixed Income Courses, Capital Markets Courses, Credit Courses, Operations Settlements Clearing Courses, Risk Management Courses, Securities Services/ Securities Finance, Back Office Inhouse Courses , Credit Inhouse, Debt / Fixed Income Inhouse, Hedge Funds Inhouse, Operations settlements Clearing Inhouse, Prime Brokerage Inhouse
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Understanding the Economic Functions of RepoFinancing long positions/lending bonds for yield enhancement; financing short positions/collateralising a cash investment; Central Bank open market operations; Supply and demand effects on repo rates; general, specific and 'special' collateral.
| Case Study Part I Participants examine a number of repo transactions and identify the motivations of all players. |
Essential Financial Arithmetic
Time value of money; market calculation conventions; the money market: instruments and pricing; the bond markets: price/yield relationship.
The Mechanics of Repo: Alternative Structures
Classic repo; buy/sell backs; tri-party repo, Bonds borrowed; Initial margin (haircuts) and marking to market/repricing. Delivery repo, hold-in-custody and safekeeping repo.
Exercise: Pricing and Buy/Sell Back
Risks and Documentation
Counterparty risk; collateral risk; issuer risk; recharacterisation risk; market risk. Documentation: key clauses in the PSA/ISMA Global Master Repurchase Agreement.
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Total Return Swaps
An In-Depth Look at Electronic Trading
Overview of electronic trading platforms, inter-dealer systems, straight-through processing of transactions, on-line trading capability, price engines.
Case Study Part II
Participants are given a typical trading scenario of positions to manage. They will trade the positions with a view to maximising repo profits, and examine their virtual P/L using Apex TM |
Trading and Hedging Strategies Supported by Repo
The central role of the repo desk on the trading floor: Supporting the fixed income sales desk; hedging new issues, swap books, option positions; financing long and short positions of bond traders involved in: creating a tail, short hedge and long hedge, yield spread arbitrage. Matched book trading.
Exercise: Repo and Spread Trading
The Implied Rate: Basis Trading
Bond futures: notional bond, conversion factors, cheapest to deliver, carrying costs and the implied repo rate, gross and net basis; cash and carry arbitrage.
Exercise: Cash and Carry Arbitrage
Repo Clearing and Netting
Overview of central clearing and netting; Forms of netting, the benefits of central clearing, the mechanics; Risk management and margining in clearing; the major service providers.
Repo and the Yield Curve
The effect of repo on value along the yield curve: understanding the break-even forward yield curve; forward pricing and repo; "when issued" bonds and related repo strategies; Using repo to enhance returns: total returns of individual issues and outperformance against a benchmark.
Exercises: - Repo and the Yield Curve / Repo
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