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frank_j_fabozzi_steven_v_mann.md | combined | 1 | NINTH EDITION
FIXED INCOME SECURITIES THE HANDBOOK OF
EDITED BY
FRANK J. FABOZZI
FRANCESCO A. FABOZZI AND STEVEN V. MANN WITH THE ASSISTANCE OF
FABOZZI-9E\_00-FM.indd 1 4/6/21 11:36 AM
Copyright © 2021, 2012, 2005, 2001, 1997, 1995, 1991, 1987, 1983 by McGraw Hill. All rights reserved. Except as permitted under the Uni... | null | null | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 2 | McGraw-Hill Education eBooks are available at special quantity discounts to use as premiums and sales promotions or for use in corporate training programs. To contact a representative, please visit the Contact Us page at [www.mhprofessional.com.](http://www.mhprofessional.com)
This publication is designed to provide ac... | FIXED INCOME SECURITIES THE HANDBOOK OF | null | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 3 | THE WORK IS PROVIDED "AS IS." McGRAW-HILL EDUCATION AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUD-ING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPER-LINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY W... | FIXED INCOME SECURITIES THE HANDBOOK OF | TERMS OF USE | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **[Preface](#page-23-0) xxiii [Acknowledgments](#page-26-0) xxvi [Contributors](#page-27-0) xxvii**
**PART ONE [INTRODUCTION](#page-31-0)**
**Chapter 1**
**[Overview of the Types and Features of Fixed Income Securities](#page-33-0) 3**
*Frank J. Fabozzi, Adam Kobor, Steven V. Mann, and Francesco A. Fabozzi*
[Bonds](#pa... | FIXED INCOME SECURITIES THE HANDBOOK OF | TERMS OF USE | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | [Interest-Rate Risk](#page-54-0) 24 [Reinvestment Risk](#page-55-0) 25 [Call/Prepayment Risk](#page-56-0) 26 [Corporate Credit Risk](#page-56-0) 26 [Sovereign Credit Risk](#page-59-0) 29 [Inflation, or Purchasing-Power, Risk](#page-60-0) 30 [Liquidity Risk](#page-60-0) 30 [Exchange-Rate Risk \(Currency Risk\)](#page-63... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART ONE [INTRODUCTION](#page-31-0)** | **[Risks Associated with Investing in Fixed Income Securities](#page-53-0) 23** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 4**
**[Bond Pricing, Yield Measures, and Total Return](#page-93-0) 63**
*Frank J. Fabozzi*
[Bond Pricing](#page-93-0) 63 [Conventional Yield Measures](#page-106-0) 76 [Total Return Analysis](#page-117-0) 87 [Key Points](#page-124-0) 94
**Chapter 5**
**[Measuring Interest-Rate Risk](#page-127-0) 97**
*Frank J.... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[BASICS OF FIXED INCOME ANALYTICS](#page-91-0)** | **Chapter 4** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_00-FM.indd 4 4/6/21 11:36 AM
[Risk and Performance](#page-187-0) 157 [Why Data Science Is Different in Credit](#page-192-0) 162 [Organization and Planning](#page-194-0) 164 [Key Points](#page-196-0) 166
**PART THREE [TREASURY, AGENCY, MUNICIPAL,](#page-199-0) AND CORPORATE BONDS**
**Chapter 7**
**[U.S. Trea... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Bond Pricing, Yield Measures, and Total Return](#page-93-0) 63** | **[Data Science and the Corporate Credit Markets](#page-173-0) 143** *Robert S. Kricheff* | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 9**
**[Municipal Bonds](#page-231-0) 201**
*Sylvan G. Feldstein, Frank J. Fabozzi, Douglas Gaylor, and David Ratner*
FABOZZI-9E\_00-FM.indd 5 4/6/21 11:36 AM
[Features of Municipal Securities](#page-233-0) 203 [Types of Municipal Obligations](#page-235-0) 205 [The Commercial Credit Rating of Municipal Bonds](... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART THREE [TREASURY, AGENCY, MUNICIPAL,](#page-199-0) AND CORPORATE BONDS** | **Chapter 9** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 11**
**[Leveraged Loans](#page-293-0) 263**
*Stephen J. Antczak, Frank J. Fabozzi, and Jung Lee*
[Syndicated Bank Loans](#page-294-0) 264 [Loan Structure](#page-295-0) 265 [Loan Terms](#page-296-0) 266 [Recovery Rates](#page-297-0) 267 [Secondary Market](#page-299-0) 269 [Key Points](#page-300-0) 270
**Chapte... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART THREE [TREASURY, AGENCY, MUNICIPAL,](#page-199-0) AND CORPORATE BONDS** | **Chapter 11** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 14**
**[Floating-Rate Securities](#page-341-0) 311**
*Frank J. Fabozzi, Fred Hoffman, and Steven V. Mann*
[General Features of Floaters and Major Product Types](#page-342-0) 312 [Call and Put Provisions](#page-344-0) 314 [Spread Measures](#page-345-0) 315 [Price Volatility Characteristics of Floaters](#page-3... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART THREE [TREASURY, AGENCY, MUNICIPAL,](#page-199-0) AND CORPORATE BONDS** | **Chapter 14** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_00-FM.indd 7 4/6/21 11:36 AM
**[The Emerging Markets Debt](#page-385-0) 355**
*Jane Brauer, Lucas Martin, and David Beker*
[The Debt Universe](#page-386-0) 356 [External Debt Markets](#page-388-0) 358 [Local Debt Markets](#page-392-0) 362 [The Foreign Investor Base](#page-394-0) 364 [EM Debt Performance](#p... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART THREE [TREASURY, AGENCY, MUNICIPAL,](#page-199-0) AND CORPORATE BONDS** | **[Non-U.S. Sovereign Bonds](#page-373-0) 343** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_00-FM.indd 8 4/6/21 11:36 AM
**Chapter 19**
**[Nonconvertible Preferred Stock](#page-445-0) 415**
*Steven V. Mann*
[Preferred Stock Issuance](#page-446-0) 416 [Trust Preferred](#page-447-0) 417 [Preferred Stock Ratings](#page-448-0) 418 [Tax Treatment of Dividends](#page-448-0) 418 [Key Points](#page-449-0)... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[The Emerging Markets Debt](#page-385-0) 355** | **[Fixed Income Exchange Traded Funds](#page-427-0) 397** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 22**
**[Agency Mortgage Passthrough Securities](#page-501-0) 471**
*Glenn Schultz and Frank J. Fabozzi*
[Issuers of Agency Passthroughs](#page-502-0) 472 [Cash-Flow Characteristics](#page-503-0) 473 [Some MBS Analytics](#page-513-0) 483 [Anatomy of the Agency Passthrough Market](#page-521-0) 491 [TBA Coupons]... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART FOUR [MORTGAGE-BACKED AND](#page-471-0) ASSET-BACKED SECURITIES** | **Chapter 22** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 5 | [Overview of the SMBS Market](#page-562-0) 532 [Investment Characteristics](#page-566-0) 536 [Key Points](#page-577-0) 547
**[Nonagency Residential Mortgage-Backed Securities:](#page-579-0) Legacy, RMBS 2.0, and Non-QM 549** *Dapeng Hu and Mario Triantafillou*
[Market Overview](#page-581-0) 551 [Collateral](#page-586-... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART FOUR [MORTGAGE-BACKED AND](#page-471-0) ASSET-BACKED SECURITIES** | **[Agency Mortgage Passthrough Securities](#page-501-0) 471** | **Chapter 24** | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 27**
**[Commercial Mortgage-Backed Securities](#page-641-0) 611**
*Wayne M. Fitzgerald II, Mark D. Paltrowitz, and Amit Madaan*
[The Collateral Pool](#page-643-0) 613 [CMBS Trust Structure](#page-655-0) 625 [Transaction Participants](#page-657-0) 627 [Transaction Features](#page-660-0) 630 [Market Development... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART FOUR [MORTGAGE-BACKED AND](#page-471-0) ASSET-BACKED SECURITIES** | **[Agency Mortgage Passthrough Securities](#page-501-0) 471** | **Chapter 27** | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | *John McElravey*
[Securitization in Brief](#page-695-0) 665 [Auto Loans and Leases](#page-700-0) 670 [Equipment Loans and Leases](#page-703-0) 673 [Student Loans](#page-705-0) 675 [Key Points](#page-708-0) 678
**Chapter 30**
**[Collateralized Loan Obligations](#page-711-0) 681** *Frank J. Fabozzi and Fred Hoffman*
[Ass... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Securities Backed by Auto Loans and Leases,](#page-695-0) Equipment Loans and Leases, and Student Loans 665** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | | A Framework for Analyzing Yield-Curve Trades<br>Antti Ilmanen | 715 |
|------------------------------------------------------------------------|-----|
| Forward Rates and Their Determinants<br>716 | |
| Decomposing Expected Returns of Bond Positions<br>723 | ... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Overview of Forward Rate Analysis 691](#page-721-0)** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | FABOZZI-9E\_00-FM.indd 12 4/6/21 11:36 AM
**Chapter 35**
**[Relative Value Trading](#page-839-0) 809**
*Jordan Hu, Marc Seah, and Xu Gao*
[What Is Fixed Income Relative Value?](#page-839-0) 809 [Z-Score, Mean Reversion, and Expected Return](#page-841-0) 811 [Market-Based vs. Model-Based Relative Value](#page-843-0) 813... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART SIX [VALUATION AND RELATIVE VALUE](#page-837-0)** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 37**
**[Valuation of Mortgage-Backed Securities](#page-885-0) 855**
*Rajashri (Priya) Joshi, Debra Chen, and Tom P. Davis*
[Static Valuation and Its Limitations](#page-885-0) 855 [Monte Carlo Models for Valuing MBS](#page-889-0) 859 [Mbs Modeling Framework](#page-896-0) 866 [Option-Adjusted Valuation Metrics]... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART SIX [VALUATION AND RELATIVE VALUE](#page-837-0)** | **Chapter 37** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_00-FM.indd 13 4/6/21 11:36 AM
**Chapter 39**
**[Risk Neutral Pricing of Convertible Bonds](#page-959-0) 929**
*Peter J. Zeitsch, Matthew Hyatt, and Tom P. Davis*
[The Model](#page-960-0) 930 [The Default Intensity](#page-963-0) 933 [Specifying the Credit Spread](#page-968-0) 938 [Sensitivities](#page-982-0)... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART SIX [VALUATION AND RELATIVE VALUE](#page-837-0)** | **[Convertible Securities](#page-911-0) 881** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 41**
**[The Credit Analysis of Municipal General Obligation](#page-1051-0) and Revenue Bonds 1021**
*Sylvan G. Feldstein, Douglas Gaylor, and David Ratner*
[The Legal Opinion](#page-1052-0) 1022 [The Need to Know Who Really Is the Issuer](#page-1057-0) 1027 [On the Financial Advisor and Underwriter](#page-10... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART SEVEN [CREDIT ANALYSIS](#page-1003-0)** | **Chapter 41** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 43**
**[Introduction to Bond Portfolio Management](#page-1105-0) 1075** *Kenneth E. Volpert*
[Overview of Traditional Bond Management](#page-1105-0) 1075 [Overview of the Core/Satellite Approach](#page-1108-0) 1078 [Why Choose Indexing?](#page-1109-0) 1079 [Which Index Should Be Used?](#page-1111-0) 1081 [Pri... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **Chapter 43** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | *Gueorgui S. Konstantinov and Frank Osswald*
[Building a Bond Index](#page-1156-0) 1126 [Description](#page-1158-0) 1128 [Bond Index Risk and Return](#page-1163-0) 1133 [Bond Index Relationship](#page-1164-0) 1134 [Bond Indexes and Smart Beta](#page-1171-0) 1141 [Key Points](#page-1175-0) 1145
**Chapter 46**
**[Quantit... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **[Bond Indexes and Bond Portfolio Management](#page-1155-0) 1125** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 47**
**[Factor Investing in Fixed Income Securities](#page-1211-0) 1181**
*Guido Baltussen, Patrick Houweling, Martin Martens, and Olaf Penninga*
[Factor Investing](#page-1211-0) 1181 [Which Factors?](#page-1214-0) 1184 [Factors Premiums in Government Bonds](#page-1215-0) 1185 [Factor Premiums in Corporate Bo... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **Chapter 47** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 50**
[Key Points](#page-1266-0) 1236
| Analyzing Risk from Multifactor Fixed Income Models | 1239 |
|-----------------------------------------------------|------|
| Barclays | |
FABOZZI-9E\_00-FM.indd 16 4/6/21 11:36 AM
[Approaches Used to Analyze Risk](#page-12... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **Chapter 49** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 53**
**[Managing the Spread Risk of Credit Portfolios](#page-1333-0) Using the Duration Times Spread Measure 1303** *Arik Ben Dor, Lev Dynkin, and Jay Hyman* [The Need for a New Measure of Credit Spread Exposure](#page-1334-0) 1304 [Spread Volatility and DTS](#page-1337-0) 1307 [Risk Projection: Predicting S... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **Chapter 53** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | [Bottom-Up Credit/Security Analysis](#page-1363-0) 1333 [Top-Down High-Yield Market Drivers and Macro Considerations](#page-1389-0) 1359 [Portfolio Considerations](#page-1395-0) 1365 [Key Points](#page-1404-0) 1374
FABOZZI-9E\_00-FM.indd 17 4/6/21 11:36 AM
**Chapter 55**
**[Corporate Bonds and ESG](#page-1407-0) 1377**... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **[Constructing and Managing High-Yield Bond Portfolios](#page-1361-0) 1331** *Nicholas R. Sarchese and Mark R. Shenkman* | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 57**
**[International Bond Portfolio Management](#page-1447-0) 1417**
*Gueorgui S. Konstantinov and Frank J. Fabozzi*
[Risks and Returns in International Bond Portfolios](#page-1448-0) 1418 [A Yield Curve–Based Approach for International Bond Portfolios](#page-1450-0) 1420 [Currency Allocation and Bond Select... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **[Constructing and Managing High-Yield Bond Portfolios](#page-1361-0) 1331** *Nicholas R. Sarchese and Mark R. Shenkman* | **Chapter 57** | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 5 | FABOZZI-9E\_00-FM.indd 18 4/6/21 11:36 AM
| Hedge Fund Fixed Income Strategies | 1467 |
|------------------------------------------------------------------|------|
| Ellen Rachlin, Chris P. Dialynas, and Vineer Bhansali | |
| Macro Investing<br>1467 ... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **[Constructing and Managing High-Yield Bond Portfolios](#page-1361-0) 1331** *Nicholas R. Sarchese and Mark R. Shenkman* | **[Factor Investing in Sovereign Bond Markets](#page-1477-0) 1447** | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **PART NINE**
**[DERIVATIVE INSTRUMENTS AND](#page-1525-0) THEIR APPLICATIONS**
**Chapter 61**
**[Introduction to Interest-Rate Futures and Options Contracts](#page-1527-0) 1497** *Frank J. Fabozzi, Steven V. Mann, and Adam Kobor* [Basic Characteristics of Futures Contracts](#page-1527-0) 1497 [Basic Characteristics o... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART EIGHT [PORTFOLIO MANAGEMENT AND STRATEGIES](#page-1103-0)** | **[Constructing and Managing High-Yield Bond Portfolios](#page-1361-0) 1331** *Nicholas R. Sarchese and Mark R. Shenkman* | **PART NINE** | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 63**
**[Controlling Interest-Rate Risk with Futures and Options](#page-1569-0) 1539**
*Frank J. Fabozzi and Shrikant Ramamurthy*
[Controlling Interest-Rate Risk with Futures](#page-1569-0) 1539 [Hedging with Options](#page-1588-0) 1558 [Key Points](#page-1602-0) 1572
**Chapter 64**
**[Interest-Rate Swaps](#pa... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Introduction to Interest-Rate Futures and Options Contracts](#page-1527-0) 1497** *Frank J. Fabozzi, Steven V. Mann, and Adam Kobor* [Basic Characteristics of Futures Contracts](#page-1527-0) 1497 [Basic Characteristics of Forward Contracts](#page-1528-0) 1498 [Basic Characteristics of Option Contracts](#page-1529-0... | **Chapter 63** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | *Gerald W. Buetow, Jr. and Brian J. Henderson*
[Swap Valuation Using the Lattice Approach](#page-1626-0) 1596 [Forward Start Swaps](#page-1632-0) 1602 [Valuing Swaptions](#page-1636-0) 1606 [Valuing Basis Swaps and Non-LIBOR-Based Swaps](#page-1641-0) 1611 [Factors Affecting Swap Valuation](#page-1644-0) 1614 [Key Poin... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Introduction to Interest-Rate Futures and Options Contracts](#page-1527-0) 1497** *Frank J. Fabozzi, Steven V. Mann, and Adam Kobor* [Basic Characteristics of Futures Contracts](#page-1527-0) 1497 [Basic Characteristics of Forward Contracts](#page-1528-0) 1498 [Basic Characteristics of Option Contracts](#page-1529-0... | **[The Valuation of Interest-Rate Swaps and Swaptions](#page-1625-0) 1595** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | [Pricing of Caps and Floors](#page-1672-0) 1642 [Interest-Rate Caps](#page-1673-0) 1643 [Participating Caps](#page-1676-0) 1646 [Interest-Rate Floors](#page-1679-0) 1649 [Interest-Rate Collars](#page-1680-0) 1650 [Interest-Rate Corridors](#page-1682-0) 1652 [Cap/Floor Parity](#page-1683-0) 1653 [Termination of Caps and... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Introduction to Interest-Rate Futures and Options Contracts](#page-1527-0) 1497** *Frank J. Fabozzi, Steven V. Mann, and Adam Kobor* [Basic Characteristics of Futures Contracts](#page-1527-0) 1497 [Basic Characteristics of Forward Contracts](#page-1528-0) 1498 [Basic Characteristics of Option Contracts](#page-1529-0... | **[The Valuation of Interest-Rate Swaps and Swaptions](#page-1625-0) 1595** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 5 | FABOZZI-9E\_00-FM.indd 21 4/6/21 11:36 AM
[CDS Valuation](#page-1715-0) 1685 [The CDS–Bond Relationship](#page-1717-0) 1687 [Model](#page-1722-0) 1692
[New and Existing Contracts](#page-1728-0) 1698 [Risk Management](#page-1729-0) 1699 [CDS Index Valuation](#page-1735-0) 1705 [Key Points](#page-1738-0) 1708
**PART TEN ... | FIXED INCOME SECURITIES THE HANDBOOK OF | **[Introduction to Interest-Rate Futures and Options Contracts](#page-1527-0) 1497** *Frank J. Fabozzi, Steven V. Mann, and Adam Kobor* [Basic Characteristics of Futures Contracts](#page-1527-0) 1497 [Basic Characteristics of Forward Contracts](#page-1528-0) 1498 [Basic Characteristics of Option Contracts](#page-1529-0... | **[The Valuation of Interest-Rate Swaps and Swaptions](#page-1625-0) 1595** | **[Credit Derivative Valuation and Risk](#page-1715-0) 1685** *Dominic O'Kane* | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Chapter 72**
**[Advanced Topics in Performance Attribution 1787](#page-1817-0)** *Barclays*
[Multicurrency Attribution](#page-1817-0) 1787 [Derivatives and Leverage](#page-1834-0) 1804 [From Theory to Practice](#page-1841-0) 1811 [Key Points](#page-1845-0) 1815
**[Index](#page-1847-0) 1817**
<span id="page-23-0"></sp... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **Chapter 72** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Parts Three and Four cover the basic characteristics of the instruments traded in the market. Government securities and corporate debt obligations (both bonds and loans) are covered in Part Three. Additions to the ninth edition are coverage of Commercial Paper (Chapter 13), Non-U.S. Sovereign Bonds (Chapter 16), and Pr... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **[Advanced Topics in Performance Attribution 1787](#page-1817-0)** *Barclays* | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | The topic of credit risk and its analysis is the subject of Part Seven. Traditional methods of credit analysis for corporate bonds and municipal bonds are explained and illustrated. There is also coverage of the various approaches to credit risk modeling.
Part Eight, which has 18 chapters, covers bond portfolio managem... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **[Advanced Topics in Performance Attribution 1787](#page-1817-0)** *Barclays* | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Part Nine covers derivative instruments: interest-rate derivatives (futures/ forward contracts, options, interest-rate swaps, and caps and floors) and credit derivatives (primarily credit default swaps). The basic feature of each instrument is described as well as how it is valued and used to control the risk of a fixe... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **[Advanced Topics in Performance Attribution 1787](#page-1817-0)** *Barclays* | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Moreover, the following four chapters have been substantially revised:
FABOZZI-9E\_00-FM.indd 25 4/6/21 11:36 AM
- Agency Debt Securities
- Leveraged Loans
- Fixed Income Exchange Traded Funds
- Convertible Securities
*Frank J. Fabozzi, Ph.D., CFA, CPA* Editor <span id="page-26-0"></span>The first edition of *The Handb... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **SUMMARY OF REVISIONS** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Richard Wilson contributed several chapters to earlier editions of the *Handbook*. When I began my study of the fixed income market in the late 1970s, he served as my mentor. At that time, there were so many nuances about the institutional aspects of the market that were not in print. His historical perspective and his... | FIXED INCOME SECURITIES THE HANDBOOK OF | **PART TEN [PERFORMANCE ATTRIBUTION ANALYSIS](#page-1739-0)** | **SUMMARY OF REVISIONS** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Chief Investment Officer LongTail Alpha, LLC
Anand K. Bhattacharya, Ph.D.
Professor of Practice Department of Finance Arizona State University
Mihir Bhattacharya, Ph.D.
Frédéric Blanc-Brude, Ph.D.
Director EDHEC Infrastructure Institute
Jane Brauer, Ph.D. Emerging Market Fixed Income Strategist BofA Securities
John B. ... | Stephen J. Antczak, CFA | Vineer Bhansali, Ph.D. | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Associate Professor in Finance Grenoble Ecole de Management
Chris P. Dialynas Managing Director
PIMCO
Arik Ben Dor, Ph.D.
Managing Director Barclays
Michael Dorigan, Ph.D.
Principal Conversion Financial Services Director, Master of Science in Finance University of Missouri
Lev Dynkin, Ph.D. Managing Director Barclays
F... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | William J. Gartland, CFA Vice President, Fixed-Income Data and Analytics Broadridge
Douglas Gaylor Industry Consultant
Kay Giesecke, Ph.D. Professor of Management Science and Engineering Stanford University Founder and CEO Intelligent Financial Machines
Lisa Goldberg, Ph.D. Professor in the Practice of Statistics and E... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | Martin Fridson, CFA | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Antti Ilmanen, Ph.D. Principal AQR Capital Management
Robert R. Johnson, Ph.D., CFA, CAIA Professor Heider College of Business Creighton University
Rajashri (Priya) Joshi, Ph.D. Senior Quantitative Researcher, Mortgages and Structured Products FactSet Research Systems
Andrew Kalotay, Ph.D. President Andrew Kalotay Asso... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | Martin Fridson, CFA | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Stephen Laipply Managing Director BlackRock
Jung Lee Consultant
Nicholas C. Letica Managing Director TD Securities
Amit Madaan Director BlackRock
Jean-Michel Maeso Senior Quantitative Researcher EDHEC-Risk Institute
Jack Malvey, CFA Global Capital Market Consultant
Steven V. Mann, Ph.D. Distinguished Professor Emeritus... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | Martin Fridson, CFA | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | AlixPartners, LLP
Mark D. Paltrowitz Managing Director
Olaf Penninga Quantitative Portfolio Manager Robeco Asset Management
Bruce D. Phelps, Ph.D., CFA Managing Director
Wesley Phoa, Ph.D.
Momtchil Pojarliev, Ph.D., CFA Head of Currencies BNP Paribas Asset Management
Shrikant Ramamurthy
David Ratner, CFA Industry Consu... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | Martin Fridson, CFA | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Mark R. Shenkman
Founder and President Shenkman Capital Management, Inc. Pururav Thoutireddy, Ph.D. Vice President Franklin Templeton Investments
Mario Triantafillou, Ph.D. Director
BlackRock Financial Management, Inc.
Matthew Tucker, CFA Managing Director
BlackRock
Kenneth E. Volpert, CFA Consultant
David Yuen, CFA Se... | Frédéric Blanc-Brude, Ph.D. | Marielle de Jong, Ph.D. | Mark R. Shenkman | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Adam Kobor, Ph.D., CFA Managing Director of Investments New York University
Steven V. Mann, Ph.D.
Distinguished Professor Emeritus The Moore School of Business University of South Carolina
Francesco A. Fabozzi
Managing Editor *Journal of Financial Data Science*
This chapter will explore some of the most important featu... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | Frank J. Fabozzi, Ph.D., CFA, CPA | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Domestic corporations, for example, include regulated utilities as well as less regulated manufacturers. Furthermore, each firm may sell different kinds of bonds: Some debt may be publicly placed, whereas other bonds may be sold directly to one or only a few buyers (referred to as a *private placement*); some debt is c... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **BONDS** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **EXHIBIT 1-1**
Outstanding Value of U.S. Fixed Income Sectors (as of December 31, 2019)
| USD Billion |
|-------------|
| \$16,673.3 |
| 10,333.6 |
| 9,597.8 |
| 3,854.5 |
| 1,825.9 |
| 1,799.3 |
| 1,045.2 |
| \$32,996.8 |
| |
Based on data from the Securities Industry and Financia... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **BONDS** | **EXHIBIT 1-1** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **Maturity of a Bond**
The legal document that sets forth all of the parameters of the agreement between the bondholders and the issuer is the *indenture*. A key feature of any bond that is
FABOZZI-9E\_01.indd 4 4/6/21 11:36 AM
<span id="page-35-0"></span>covered by the indenture is its *term-to-maturity,* that is, the... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Maturity of a Bond** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | A bond's maturity is crucial for several reasons. First, maturity indicates the expected life of the instrument, or the number of periods during which the holder of the bond can expect to receive the coupon interest and the number of years before the principal will be paid. Second, the yield on a bond depends substanti... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Maturity of a Bond** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Usually, the maturity of a corporate bond is between 1 and 30 years. This is not to say that there are not outliers. In fact, financially sound firms have begun to issue longer-term debt in order to lock in long-term attractive financing. For example, in the late 1990s, there were approximately 90 corporate bonds issue... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Maturity of a Bond** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | The interest rate that the issuer must pay bondholders during the term of the bond is called the *coupon rate*. The coupon rate is always cited, along with maturity, in any quotation of a bond's price. Thus, one might hear about the "IBM 6.5 due in 2028'' or the "Campbell's Soup 8.875 due in 2021" in discussions of cur... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | The coupon rate has another major impact on an investor's experience with a bond. The coupon's size influences the volatility of the bond's price: the larger the coupon, the less the price will change in response to a change in market interest rates. Thus, the coupon and the maturity have opposite effects on the price ... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | The par value, also referred to as the *face value* or *principal*, of a bond is the amount to be repaid to the investor either at maturity or at those times when the bond is called or retired according to a repayment schedule or sinking-fund provisions that we describe later. But the principal plays another role, too:... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 4 | *Zero-Coupon Bonds: Zero-coupon bonds* have been issued by corporations and municipalities since the early 1980s. For example, Barclay's Bank PLC has a zero-coupon bond outstanding due in August 2036 that was issued on August 15, 2006. Although the U.S. Treasury does not issue zero-coupon debt with a maturity greater t... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Types of Coupon Structures** | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 4 | *Inflation-Linked Bonds:* Sovereign governments and corporations issue securities with the principal tied to the rate of inflation. These debt instruments, referred to as *inflation-linked bonds,* or simply "linkers," have been issued since 1945. The earlier issuers of linkers were the governments of Argentina, Brazil,... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Types of Coupon Structures** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Different designs can be employed for linkers. The reference rate that is a proxy for the inflation rate is changes in the consumer price index (CPI). In the United Kingdom, for example, the index used is the Retail Prices Index (All Items), or RPI. In France, there are two linkers with two different indexes: the Frenc... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Types of Coupon Structures** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | *Floating-Rate Securities:* In contrast to a coupon rate that is fixed for the bond's entire life, the term *floating-rate security* or *floater* encompasses several different types of securities with one common feature: the coupon rate will vary over the instrument's life. The coupon rate is reset at designated dates ... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Types of Coupon Structures** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_01.indd 8 4/6/21 11:36 AM
<sup>1.</sup> The CPI-U is the most widely followed and perhaps the most understood inflation index among alternative choices, such as the Gross Domestic Product (GDP) deflator and the Personal Consumption Expenditure (PCE) deflator. Monthly changes in the CPI-U represent the avera... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Types of Coupon Structures** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | 18% − 2.5 × (three-month LIBOR)
This inverse floater had a floor of 3% and a cap of 15.5%. Finally, *range notes* are floaters whose coupon rate is equal to the reference rate (adjusted for a spread) as long as the reference rate is within a certain range on the reset date. If the reference rate is outside the range, t... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | 18% − 2.5 × (three-month LIBOR) | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | SOFR is a volume-weighted median rate based on actual transaction data from overnight tri-party repo and cleared overnight bilateral repo markets (excluding Fed transactions). In the past, banks/dealers were not obliged to submit repo trade to the Fed. Since April 2018, it has been mandatory to submit repo deal details... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | 18% − 2.5 × (three-month LIBOR) | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | A SOFR-based futures product also was introduced by the Chicago Mercantile Exchange (CME) in May 2018. Both one-month and three-month contracts exist, and the settlement rate is the compounded daily SOFR during the reference contract quarter. Currently SOFR contracts are available for up to 10 years (i.e., 39 quarterly... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | 18% − 2.5 × (three-month LIBOR) | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 4 | Another high-yield bond structure allows the issuer to reset the coupon rate so that the bond will trade at a predetermined price. The coupon rate may reset annually or reset only once over the life of the bond. Generally, the coupon rate will be the average of rates suggested by two investment banking firms. The new r... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | 18% − 2.5 × (three-month LIBOR) | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **Bond Quote Convention**
By convention, the prices of most bonds are quoted as percentages of par or face value. To convert the price quote into a dollar figure, one simply divides the price by 100 (converting it to decimal) and then multiplies by the par value. The following table illustrates this.
| Par Value (\$) |... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | **Bond Quote Convention** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | *Call and refunding provisions:* If a bond's indenture contains a *call feature* or *call provision,* the issuer retains the right to retire the debt, fully or partially, before the scheduled maturity date. The chief benefit of such a feature is that it permits the borrower, should market rates fall, to replace the bon... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | Because the call feature benefits the issuer and places the investor at a disadvantage, callable bonds carry higher yields than bonds that cannot be retired before maturity. This difference in yields is likely to grow when investors believe that market rates are about to fall, and that the borrower may be tempted to re... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_01.indd 11 4/6/21 11:36 AM
<span id="page-42-0"></span>and, as a result, offers less call protection than a noncallable bond, which cannot be called for any reason except to satisfy sinking-fund requirements, explained later. Beginning in early 1986, a number of corporations issued long-term debt with exten... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | When will the issuer find it economically beneficial to refund an issue? It is important for investors to understand the process by which a firm decides whether to retire an old bond and issue a new one. A simple and brief example will illustrate that process and introduce the reader to the kinds of calculations a bond... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 4 | *Sinking-fund provision*: The *sinking-fund provision,* which is typical for publicly and privately issued industrial bonds and not uncommon among certain classes of utility debt, requires the obligor to retire a certain amount of the outstanding debt each year. Generally, the retirement occurs in one of two ways. The ... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | There are three advantages of a sinking-fund provision from the investor's perspective. The sinking-fund requirement ensures an orderly retirement of the debt so that the final payment, at maturity, will not be too large. Second, the provision enhances the liquidity of some debt, especially for smaller issues with thin... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | The sinking-fund provision also may harm the investor's position through the *optional acceleration feature,* a part of many corporate bond indentures. With this option, the corporation is free to retire more than the amount of debt the sinking fund requires (and often a multiple thereof) and to do it at the call price... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | *Put provisions:* A *putable bond* grants the investor the right to sell the issue back to the issuer at par value on designated dates. The advantage to the investor is that if interest rates rise after the issue date, thereby reducing the value of the bond, the investor can force the issuer to redeem the bond at par. ... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | The conversion privilege may be permitted for all or only some portion of the bond's life. The conversion ratio may decline over time. It is always adjusted proportionately for stock splits and stock dividends. Convertible bonds are typically callable by the issuer. This permits the issuer to force conversion of the is... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | FABOZZI-9E\_01.indd 14 4/6/21 11:36 AM
<span id="page-45-0"></span>*Warrants:* A *warrant* is an option a corporation grants to bondholders that permits the owner to buy from the firm a certain number of shares of common stock at a specified price. It is not uncommon for publicly held corporations to issue warrants wit... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Coupon and Principal** | <span id="page-41-0"></span>**Embedded Options** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **Bond Yields**
Bond market participants use several measures to describe the potential return from investing in a bond: current yield, yield to maturity, yield-to-call for a callable bond, and yield-to-put for a putable bond. A *yield-to-worst* is often quoted for bonds. This is the lowest yield of the following: yiel... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Bond Yields** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Government bonds "with negative yield" are issued either with positive coupon or no coupon, however, their current purchase price is so high, that the cash-flow stream comprised by their coupons (if any) and the face value at maturity would result in a negative yield to maturity. For example, the current 10-year German... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Bond Yields** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 4 | **EXHIBIT 1-2**
**MEDIUM-TERM NOTES**
*Medium-term notes* are highly flexible debt instruments that can be easily structured in response to changing market conditions and investor tastes. "Medium term'' is a misnomer because these securities have ranged in maturity from nine months to 30 years and longer. Since the lat... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **Bond Yields** | **EXHIBIT 1-2** | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | <span id="page-47-0"></span>**PREFERRED STOCK**
*Preferred stock* is a class of stock, not a debt instrument, but it shares characteristics of both common stock and debt. Like the holder of common stock, the preferred stockholder is entitled to dividends. Unlike those on common stock, however, preferred stock dividends... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | <span id="page-47-0"></span>**PREFERRED STOCK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | text_block | 3 | Unlike debt, payments made to preferred stockholders are treated as a distribution of earnings. This means that they are not tax deductible to the corporation under the current tax code. (Interest payments, on the other hand, are tax deductible.) Although the after-tax cost of funds is higher if a corporation issues pr... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | <span id="page-47-0"></span>**PREFERRED STOCK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Preferred stock has some important similarities with debt, particularly in the case of cumulative preferred stock: (1) the payments to preferred stockholders
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<sup>4.</sup> Almost all preferred stock limits the security holder to the specified amount. Historically, there have been ... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | <span id="page-47-0"></span>**PREFERRED STOCK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Preferred stock may be issued without a maturity date. This is called *perpetual preferred stock.* Almost all preferred stock has a sinking-fund provision, and some preferred stock is convertible into common stock. A trademark product of Morgan Stanley is the Preferred Equity Redemption Cumulative Stock (PERCS). This i... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | <span id="page-47-0"></span>**PREFERRED STOCK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | *Private-label RMBS,* also referred to as *nonagency RMBS* and the subject of Chapter 25, are issued by thrifts, commercial banks, or private conduits that are not backed by any government entity. These securities are structured so as to provide credit enhancement that support the credit ratings that they receive. Up t... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **RESIDENTIAL MORTGAGE-BACKED SECURITIES** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | FABOZZI-9E\_01.indd 18 4/6/21 11:36 AM
<span id="page-49-1"></span><span id="page-49-0"></span>subprime market that started in the summer of 2007, and the poor performance of the collateral underlying both prime and subprime RMBS, investors no longer draw a sharp distinction between these two sectors of the private-lab... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **RESIDENTIAL MORTGAGE-BACKED SECURITIES** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **COMMERCIAL MORTGAGE-BACKED SECURITIES**
*Commercial mortgage-backed securities* (CMBSs) are backed by a pool of commercial mortgage loans on income-producing property—multifamily properties (i.e., apartment buildings), office buildings, industrial properties (including warehouses), shopping centers, hotels, and healt... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **COMMERCIAL MORTGAGE-BACKED SECURITIES** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **ASSET-BACKED SECURITIES**
*Asset-backed securities* are securities collateralized by assets that are not mortgage loans. In structuring an asset-backed security, issuers have drawn from the structures used in the mortgage-backed securities market. Asset-backed securities
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<span i... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **ASSET-BACKED SECURITIES** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **COVERED BONDS**
In the wake of the financial crisis of 2008–2009, a bond structure very familiar to European investors—covered bonds—was touted as an alternative funding source for residential mortgage loans. Collateral in the typical European covered bond includes residential/commercial mortgages and public sector d... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **COVERED BONDS** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **BEYOND TRADITIONAL LIQUID FIXED INCOME INSTRUMENT**
Before the Great Financial Crisis of 2008–2009, traditional liquid fixed income market was the place for investors to get interest rate and credit exposure. Regulatory changes, pressures on banks to rebuild their capital and keep their balance sheet lean, as well as... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **BEYOND TRADITIONAL LIQUID FIXED INCOME INSTRUMENT** | null | null | null | |
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<span id="page-51-1"></span><span id="page-51-0"></span>mortgage borrowers), commercial real estate (e.g., commercial real estate whole loans), corporate (e.g., middle market direct lending, mezzanine lending), and other categories (e.g., trade finance). By investing in private cr... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **BEYOND TRADITIONAL LIQUID FIXED INCOME INSTRUMENT** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **KEY POINTS**
- Bonds differ on a number of dimensions, which include type of issuer, maturity, coupon, principal amount, method of redemption, and embedded options.
- Embedded options in a debt instrument are call and refunding provisions, prepayment provisions, optional accelerated provision, put provision, and conv... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **KEY POINTS** | null | null | null | |
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<span id="page-53-0"></span>CHAPTER TWO
<span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES**
Frank J. Fabozzi, Ph.D., CFA, CPA
Professor of Finance EDHEC Business Scho... | <span id="page-33-1"></span>**OVERVIEW OF THE TYPES AND FEATURES OF FIXED INCOME SECURITIES** | **KEY POINTS** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | The different types of risk that an investor in individual fixed income securities is exposed to are as follows:
- Interest-rate risk
- Reinvestment risk
- Call/prepayment risk
- Credit risk
- Inflation, or purchasing-power, risk
- Liquidity risk
- Exchange-rate, or currency, risk
FABOZZI-9E\_02.indd 23 4/6/21 11:31 AM... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | Ravi F. Dattatreya, Ph.D. Managing Director | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **INTEREST-RATE RISK**
Interest-rate risk is the risk associated with an adverse change in interest rates. This risk includes two types of risk: level risk and yield-curve risk. In multifactor risk models described in later chapters, interest-rate risk is referred to as *yieldcurve risk* or *term structure risk*.
**Lev... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **INTEREST-RATE RISK** | null | null | null | |
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<sup>1.</sup> There are certain fixed income instruments whose price changes in the same direction as interest rates. Examples are put options and interest-only mortgage-backed securities.
<span id="page-55-1"></span><span id="page-55-0"></span>It is customary to represent the mar... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **Level Risk** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | **Yield-Curve Risk**
The yield curve is the graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. The yield curve, and a related relationship called the *term structure of interest rates,* will be discussed in more detail in later chapters. A bond portfoli... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **Yield-Curve Risk** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | Yield-curve risk is the exposure of a portfolio to changes in the shape (i.e., movement) of the yield curve. There are various measures that have been suggested for quantifying a portfolio's exposure to changes in the yield curve. The most common measure used is *key rate duration*.
Yield-curve risk is an important ris... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **Yield-Curve Risk** | null | null | null | |
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<span id="page-56-1"></span><span id="page-56-0"></span>rate at which interim cash flows can be reinvested will fall. Reinvestment risk is greater for longer holding periods. It is also greater for securities with large, early cash flows such as high-coupon bonds. This risk is ana... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **REINVESTMENT RISK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | From the investor's perspective, there are three disadvantages of the call provision and hence faces *call risk*. First, the cash-flow pattern of a callable bond is not known with certainty. Second, because the issuer may call the bonds when interest rates have dropped, the investor is exposed to reinvestment risk. Tha... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **CALL/PREPAYMENT RISK** | null | null | null | |
frank_j_fabozzi_steven_v_mann.md | combined | 3 | In the case of mortgage-backed securities, the cash flow depends on prepayments of principal made by the homeowners in the pool of mortgages that is the collateral for the security. Call risk in this case is called *prepayment risk.* It includes *contraction risk—*the risk that homeowners will prepay all or part of the... | <span id="page-53-1"></span>**RISKS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES** | **CALL/PREPAYMENT RISK** | null | null | null |
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