government auctions and direct issuances Secondary: OTC market

Transcription

1 Fixed Income

2 Debt Capital Markets Definition: A market place where cash rich investors lend to cash poor institutions and entities with funding needs whatever they may be Primary: Public issuances, private placement e (rule 144A), government auctions and direct issuances Secondary: OTC market Issuers & Participants: Governments and municipalities, institutions, supranational and corporate entities Debt Capital Securities: Coupon bond certificates, floating rate notes, STRIPS, commercial paper and certificates of deposit 3 Major Credit Ratings Agencies: Standard & Poors, Moody s, Fitch

3 Characteristics of a Debt Security Issuer: Entity issuing the debt Credit Rating: The rating assigned by an agency to provide investors with a measure of risk Principal: Amount of debt borrowed by the issuer from the lender Also know as shares/par, carrying value (CV), face value, notional, etc. Maturity: The date at which debt obligation ceases and principal repayment occurs Interest Rate: The charge/ expense for the borrowed funds Discount vs. Premium Accretion/Amortization

4 Characteristics of a Debt Security- FA Specific Identifier CUSIP: Domestic/US issuers Sedol: Foreign issuers ISIN: International identifier Issue Date (a.k.a. Dated Date): Accrual commencement date Coupon Rate First Payment Date Currency Country of Risk Coupon Frequency: monthly, quarterly, semi-annual and annual Day Count: 30/360, ACT/360, ACT/ACT, ACT/365 Maturity Date

5 Characteristics of a Debt Security

6 Yield Analysis Time Value of Money Value of any security is the present value of all future cash flows FV = PV (1 + r)^n PV = FV / (1 + r)^n Price = [Coupon / (1 + r)^n] +.[ Principal / (1 + r)^n] Yield Curve : a forward looking interest rate curve created by the demand and supply of debt funding needs/desires

7 Yield Analysis JNL Securities Yield RTK Report SunGard jump to SECYLDS2 A daily required report Security types: short term, long term and derivatives Monthly SEC Yields Report

8 Yield Analysis

9 Amortization Definition: An accounting practice that defers the long term capital charge over the remaining life of an asset Premium = Amortization = Realized Loss Discount = Accretion = Realized Gain Primary Reports JNL Amortization RTK Report ChgAmAcc SunGard PARM R083 R114 AdHoc Reporting

10 Amortization

11 Cash Flows Income: a principal expense/charge received at fixed intervals during the life of the outstanding debt Calculation Conventions: Fixed: 30/360 (D), ACT/360 (R), ACT/ACT (A), ACT/365 (H), etc. Floating: 30/360 (E, 360) & ACT/360 (F, 360R) Major Paying Agents: Fed, DTC, Euroclear, Clearstream and BIS Accounting Income Adjustments: DARV is frowned upon INT + & INT - Comments on DEDE for all adjustments greater than $25.00 Bloomberg: CSHF, BXT, SXT, PAID and CPD JPM VPR: Income Notifications, All Income Activity, Overdue Income, etc. Market Claims: Claims against record date holding brokers for income due to JNAM funds JPM VPR Report: Market Claims

12 Cash Flows Interest Due Formula = (# of days within accrual period/rate type) * Interest Rate * Shares/Par Interest is always calculated through settlement date for purchases and sales Rate Type = # of days within the year: 360, 365, ACT, etc. Non-Thirty Day Months: SG will accrue 31 days of income over 30 days and 30 days of income over 28 days Accrual Commencement Date 6/15/2013 Settlement Date (BUY) 7/12/2013 # of Days in Accrual Period 27 Accrual Type 30/360 Rate 9.00% CV 296,000 Interest Accrual per Day $ Calculated Interest Payment $ 1,998.00

13 Cash Flows Principal: The repayment of borrowed funds Usually occurs at the end of the term/period = maturity date Can occur before maturity; think sinking funds and asset backed securities Corporate Actions 144A Exchange / Reg S exchanges Debt Repurchase/ Tender Debt Exchange / Re-issue Principal paydowns *99% of all corporate action related transactions will be posted by the JNAM-CA team

14 SunGard Security Set-Up BOBD Security Issuer Definition STAD - Identifiers Category Codes BOSB Income accrual definition Reference entity BODE Issuer Name User Defined Fields SAUD Flags: 144A, term loan, etc. SAUD5 Flags: Country of risk, ODT set-up SAUD8 Flag: Pay-in-kind

15 Valuation Pricing Fair Value Dirty vs. Clean Major Providers: IDC, Reuters, Bloomberg models and quotes, etc. Required Nightly Reports R085 PARMEX Exception Monitoring New Buys vs. New Cost International Fair Value Check SunGard EMS Signoff: Percentage change > 10% & $0.005 impact

16 Unique Securities Inflation Protected Securities Treasury Inflated Protected Securities (TIPS) Consumer Price Index (CPI) Uploaded monthly Adjusted shares/par and the resulting income accrual DAHO, VSHO, VSHLI SunGard Security Set-Up TIPS Module Dirty & Dirty Dirty Sign-off Reports SunGard

17 Unique Securities Asset Backed Securities Special Purpose Vehicles (SPVs) and pool assets Securitization Government Sponsored Entities (GSE) Federal National Mortgage Association (FNMA) Federal Home Loan Mortgage Corporation (FHLMC) Government National Mortgage Association (GNMA) Commercial Student loans, auto receivables, credit card receivables, etc. Cash flows Principal paydowns and pre-payments Principal losses Income and lag days Income shortfalls

18 Unique Securities Asset Backed Securities (continued) Trading Settlements with lag days: Before the 1 st of the month, entitled to current factor payment After the 1 st of the month, NOT entitled to current factor payment Security set-up Lags days: 10, 14, 24, 44, etc. Bloomberg CPD, PAID, DES, etc.

19 Unique Securities STRIPS Principal Treasury Asset Backed Income Treasury Asset Backed SunGard Security Set-up Asset Group = PO Asset Group = IO

20 Unique Securities Multipliers Brazilian NTN (Notas de Tesouro Nacional) Priced quoted per R$ 1, par 1 Unit = R$1, shares/par Dirty Priced Mexican CETES (Mexican Federal Treasury Notes) Price quoted per pesos per 1, par CV/Par multiplied by 10.00

21 Unique Securities- Brazilian NTN

22 Unique Securities- Mexican CETES

23 In Conclusion Things to remember Value of any security is the present value of all of its cash flows Don t DARV, book income adjustment transactions and comments on DEDE SunGard security set-up Asset categorization and SunGard user defined fields Reports and exception monitoring EMS, PARMS and RTK reports Unique securities TIPS, Asset-backed and multipliers