SVKM’s Narsee Monjee Institute of Management Studies
Name of School – SBM, Bangalore
Program: MBA Trimester V
Course/Module : Fixed Income Securities & Debt Markets Module Code:
Teaching Scheme Evaluation Scheme
Lecture Practical Term End
Tutorial Internal Continuous
(Hours (Hours Examinations (TEE)
(Hours per Credit Assessment (ICA)
per per (Marks-40)
week) (Marks–60)
week) week) in Question Paper)
Marks Scaled to Marks Scaled to
-3- - - 3
-60- -40-
Pre-requisite:
Corporate Finance;
The course requires a thorough understanding of Time Value of Money (TVM), Valuation of Bonds
and Convertibles, and Weighted Average Cost of Capital (WACC);
Application of spreadsheets is an integral part of the subject.
Objectives:
1. Introduce various segments of the debt markets,
2. Cover the Corporate Debt Markets
3. Value various types of Debt instruments,
4. Demonstrate Risk management techniques using derivatives in debt markets,
5. Introduce Asset backed securities market.
6. Perform Bond Portfolio Management
Outcomes: After completion of the course, students would be able to :
1. Understand the relevance of various Fixed Income Securities, Price volatility characteristics of Bonds
and the factors influencing Yield Curve.
2. Apply the concept of Theoretical Spot rate to create Zero Coupon Yield Curve.
3. Evaluate Option free and Option bonds in terms of risk, return and value.
4. Apply the process of Credit Analysis for Bond rating
5. Understand various types of Mortgages, MBS, CMO, CDO, the cash flow and yield and the risks
associated with them.
6. Evaluate passive and active Bond Portfolio Management strategies.
Detailed Syllabus: ( per session plan )
Session Description Duration
in Hours
1 Overview of Fixed Income Securities 1.5
Overview of Fixed Income Securities
Organization of Fixed Income Markets
Types and Features of FI Securities
Investing in Fixed Income Markets –Risks
Primary and Secondary Markets
Analyse the relevance and features of various Fixed Income Securities as an
Investment Avenue.
2-3 Bond Price & Yield 3
SVKM’s Narsee Monjee Institute of Management Studies
Name of School – SBM, Bangalore
Price-Yield Conventions
Bond Price and Yield Relationship
Pricing a Zero Coupon Bond
Yield Measures
Prices in Practice
Prices and Yields of T-Bills
Analyse the Price volatility characteristics of Bonds
4 Macro-Economic Indicators and the Structure of Interest Rates 1.5
Growth Indicators
GDP, IIP, Liquidity Factors, CRR and SLR, Monetary Indicators
Base Interest Rate and Risk Premium
Risk Premium
Term Structure of Interest Rates
Evaluate macroeconomic variables on the performance of debt market
5-7 Yield Curve and Term Structure 4.5
Yield Curve and Term Structure
Main Influences of Yield Curve Shape
Duration
Modified Duration vs Effective Duration
Convexity
Boot Strapping for TSR and Z Spread.
Analyse the factors influencing the yield curve. Apply the concept boot
strapping for creating theoretical spot curve. Apply the concept of duration for
immunization.
8-9 Derivatives 3
Treasury Bond Futures Mechanics & Valuation
Interest Rate Futures & Options
Interest Rate Swaps & Swaptions
Credit Default Swaps
Evaluate Interest rate Derivatives and apply them for interest rate risk
management.
10-11 Market Segments: Agency MBS 3
Mortgages, Federal Agencies and Agency Debt
Mortgage –Backed Securities (MBS)
Product Definition and Terms
The Mortgage Industry and the Mechanics of Mortgage Loans
Lenders’ Risks
Types of Mortgages
Measuring Prepayments
Factors Affecting Prepayments
Analyze the MBS market, features, the role and reasons for prepayments in MBS
valuation.
12-14 Market Segments: CMO & Non Agency CMOs, TIPS 4.5
SVKM’s Narsee Monjee Institute of Management Studies
Name of School – SBM, Bangalore
The Collateralised Mortgage Obligation (CMO) Market
CMO Tranche Types
Agency Vs Non Agency CMOs
CMO Analysis
Non-Agency MBS Market
Overview of Inflation-indexed Debt
Mechanics & Measurement
Design of Treasury Inflation-Protected Securities (TIPS)
Cash-Flow Structure
Analyze the CMO Market; Evaluate the risk mitigation feature of TIPS
compared to fixed rate bonds.
15 Market Segments: Convertible Securities: 1.5
General Characteristics of Convertibles
Advantages and Disadvantages for Issuing Firms & Investor
Types of Convertible Investors
Analysis of Convertible Securities
Analyze the convertible securities
16 Market Segments: Cash CDOs & Synthetic CDOs: 1.5
Collateralized Debt Obligations (CDOs)
Family of CDOs
Cash CDOs
Cash Flow Transaction
Market Value Transaction
Synthetic CDOs
Single Tranche Transactions
Understand and analyze CDOs as an instrument with an objective of hedging.
17-18 Credit Analysis & Credit Risk Modeling: 3
Modeling Credit Risk and Corporate Debt Securities
Approaches to Credit Analysis
Industry Considerations
Financial Analysis
Indenture Provisions
Utilities, Finance Companies
Analysis of High-Yield Corporate Bonds
Credit Scoring Models
Structural Credit Models
Reduced –Form Credit Models
Analyze Corporate bonds with an objective of credit rating. Apply the concept
of Unused debt capacity to maintain investment grade rating.
19-20 Bond Portfolio Management 3
Overview of Traditional Bond Management
Why Choose Indexing?
SVKM’s Narsee Monjee Institute of Management Studies
Name of School – SBM, Bangalore
Primary Bond Indexing Risk Factors
Quantitative Management of Benchmarked Portfolios
Credit-Relative Value Analysis
Bond Immunization
Apply the concept of Portfolio management to Fixed Income Securities; Evaluate
Fundamental Indexing, Enhanced Indexing, Immunisation etc.
Total 30
Text Books:
Bond Markets, Analysis and Strategies, Frank J. Fabozzi, 7/E, Pearson Education, 2013.
Reference Books:
The Bond & Money Markets, Moorad Choudary, Butterworth-Heinemann Finance, Elsevier, 2003.
Fixed Income Markets and their Derivatives, 4e, Suresh Sundaresan, Academic Press, 2016.
Fixed Income Securities: Tools for Today's Markets, 3e, Bruce Tuckman, Angel Serrat, Wiley, 2011.
Fixed Income Securities, Pietro Veronesi, Wiley, 2010.
Fixed Income Analysis, Barbara S. Petitt, Jerald E. Pinto, 3e, Wendy L. Pirie, CFA Institute Investment
Series, 2015.
Any other information :
Total Marks of Internal Continuous Assessment (ICA) : 60 Marks
Distribution of ICA Marks :
Description of ICA Marks
Assignments (Group) 20
Test/ Quiz 20
Project (Group) 20
Term-End Exam 40
Total Marks : 100
_________ ____________
Signature Signature
(Prepared by Concerned Faculty/HOD) (Approved by Dean)
