SVKM’s

NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

POST GRADUATE DIPLOMA IN MANAGEMENT

Program: PGDM Trimester: VI

Course: Fixed Income Securities & Debt Code:
Markets (FISDM)
Teaching Scheme Evaluation Scheme
Classroom Practical/ Tutorials Credit Continuous Term End
Sessions Group work Evaluation Examination
(TEE)
20 50% 50%
Course Rationale:
The world’s Bond markets are estimated at over $100 trillion, much larger than the Equity market. They
offer a vital source of finance for both corporates and governments. The abandonment of fixed exchange
rates has introduced greater turbulence in the market. The course covers the intricacies of Fixed Income
markets in depth. It encompasses issues related to both domestic and global debt markets.

Course Objectives:
The course aims to:
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

Learning Outcomes:
Upon successful completion of the course, participants 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.

Prerequisite(s):
 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.

Pedagogy:
Lectures, Case Analysis, Simulation (Modeling)
Textbook:
 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.

Journals:
 Journal of Finance
 Journal of Fixed Income
 Journal of Financial and Quantitative Analysis
 Journal of Financial Economics
 RBI Bulletin, Indian Securities Markets – A review – National Stock Exchange of India, 2014

Links to websites:
 www.sifma.org
 www.icma-group.org
 www.isda.org
 www.finra.org
 www.fimmda.org
 www.rbi.gov.in
 www.sebi.gov.in

Evaluation Scheme:
 Assignments (Group) 20%
 Test/ Quiz 10%
 Project (Group) 20%
 Term-End Exam 50%
TOTAL 100%

Session Plan:
Session Topic (including subtopics) Learning Outcomes Pedagogical Textbook
Tool1 Chapters &
Readings
1 Overview of Fixed Income Analyse the relevance Class Chapter 1
Securities and features of various Discussion
 Overview of Fixed Income Fixed Income
Securities Securities as an

1
Provide the details of Pedagogical tool viz., Title & source of Case/ Nature of Simulation Exercise/ Role
Play/ Lecture/Class Discussion etc.
  Organization of Fixed Investment Avenue.
Income Markets
 Types and Features of FI
Securities
 Investing in Fixed Income
Markets –Risks
 Primary and Secondary
Markets
2-3 Bond Price & Yield Analyse the Price Class Chapters
 Price-Yield Conventions volatility Discussion – 2, 3, 4
characteristics of Lecture and
 Bond Price and Yield Bonds Problems
Relationship
 Pricing a Zero Coupon Bond
 Yield Measures
 Prices in Practice
 Prices and Yields of T-Bills

4 Macro-Economic Indicators Evaluate Class Chapter 5

and the Structure of Interest macroeconomic Discussion
Rates variables on the
 Growth Indicators performance of debt
market
 GDP, IIP, Liquidity Factors,
CRR and SLR, Monetary
Indicators
 Base Interest Rate and Risk
Premium
 Risk Premium
 Term Structure of Interest
Rates
5-7 Yield Curve and Term Analyse the factors Class Chapter 5
Structure influencing the yield Discussion on
 Yield Curve and Term curve. factors
Structure Apply the concept influencing
boot strapping for TSR;
 Main Influences of Yield creating theoretical Simulation – A
Curve Shape spot curve. modeling
Apply the concept of exercise of
 Duration
duration for creation of
 Modified Duration vs immunization. theoretical spot
Effective Duration rate for various
countries;
 Convexity Computing Z
Spread for a
 Boot Strapping for TSR and Z
corporate bond;
Spread. Apply the
concept of
duration through
problems.
8-9 Derivatives Evaluate Interest rate Class Chapters
  Treasury Bond Futures Derivatives and apply Discussion – 27, 28, 29
Mechanics & Valuation them for interest rate Lecture and
risk management. Problems
 Interest Rate Futures &
Options
 Interest Rate Swaps &
Swaptions
 Credit Default Swaps
10-11 Market Segments: Agency Analyze the MBS Class
MBS market, features, the Discussion –
 Mortgages, Federal Agencies role and reasons for Lecture and
and Agency Debt prepayments in MBS Problems
valuation. Case:
 Mortgage –Backed Securities Subprime
(MBS) Mortgages: A
Case Providing
 Product Definition and Terms
the perspectives
 The Mortgage Industry and of a Home
the Mechanics of Mortgage Buyer and a
Loans CDO
Michael Tucker,
 Lenders’ Risks Fairfield
University
 Types of Mortgages
Journal of the
 Measuring Prepayments International
Academy for
 Factors Affecting Case Studies,
Prepayments Volume 15,
Number 7, 2009,
First Part of the
Case
12-14 Market Segments: CMO & Analyze the CMO Class
Non Agency CMOs, TIPS Market; Discussion-
 The Collateralised Mortgage Evaluate the risk Lecture and
Obligation (CMO) Market mitigation feature of Problems
 CMO Tranche Types TIPS compared to
fixed rate bonds.
 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
15 Market Segments: Convertible Analyze the Class
Securities: convertible securities Discussion –
 General Characteristics of Lecture and
Convertibles Problems

 Advantages and
Disadvantages for Issuing
Firms & Investor
 Types of Convertible
Investors
 Analysis of Convertible
Securities
16 Market Segments: Cash CDOs Understand and Class
& Synthetic CDOs: analyze CDOs as an Discussion –
 Collateralized Debt instrument with an Lecture and
Obligations (CDOs) objective of hedging. problems
Case:
 Family of CDOs SUBPRIME
Mortgages: A
 Cash CDOs
Case Providing
 Cash Flow Transaction the perspectives
of a Home
 Market Value Transaction Buyer and a
CDO.
 Synthetic CDOs Michael Tucker,
 Single Tranche Transactions Fairfield
University –
Journal of the
International
Academy for
Case Studies,
Volume 15,
Number 7, 2009
Second Part of
the Case

17-18 Credit Analysis & Credit Risk Analyze Corporate Class

Modeling: bonds with an Discussion –
 Modeling Credit Risk and objective of credit Lecture
Corporate Debt Securities rating. Case:
Apply the concept of Deluxe
 Approaches to Credit Unused debt capacity Financial
Analysis to maintain investment Flexibility –
grade rating. Case studies in
 Industry Considerations
Finance.
 Financial Analysis
 Indenture Provisions
 Utilities, Finance
Companies
 Analysis of High-Yield
Corporate Bonds
 Credit Scoring Models
 Structural Credit Models
  Reduced –Form Credit
Models
19-20 Bond Portfolio Management Apply the concept of Class discussion
 Overview of Traditional Portfolio management – Lecture and
Bond Management to Fixed Income Problems
 Why Choose Indexing? Securities;
 Primary Bond Indexing Risk Evaluate Fundamental
Factors Indexing, Enhanced
 Quantitative Management of Indexing,
Benchmarked Portfolios Immunisation etc.
 Credit-Relative Value
Analysis
 Bond Immunization

Project Work: Credit Analysis, Bond Spread and Relative Value:

The objective of this exercise is to simulate the concepts of Bond Performance measures to a realistic
situation. A comparative study on Credit Analysis, Bond Spread and Z Spread of the selected bonds
comprising a portfolio is studied. Towards the end of the course, student does a presentation on the same.