A simple approach to bond trading

The introductory guide to bond investments and their portfolio management

Stefano Calicchio

• Publisher: Stefano Calicchio
• Year: 2020
• eBook ISBN: 9788835839460
• Topic: Business
• Subtopic: Business General
• Index: Business

Why invest in bonds? What are the main advantages and disadvantages? How do you generate income with bonds? This book contains the know-how and knowledge needed to answer the most important questions on the subject. For the first time, a comprehensive and accessible guide will help you do so, showing you the basics of how the subject works. Inside the practical manual you will discover all the information you need to really understand what bonds are, what their characteristics are and how they work. From different types of issuers to technical characteristics, from risk assessment to duration-related mechanisms. The reader will learn step by step how to deal with the global bond market without hesitation. Forget the ineffective theoretical manuals from thousands of pages sold at crazy prices on the web and finally enjoy a reading that will give you the know-how you are looking for at an unbeatable price.

Self-assessment test

This guide ends with an invitation to action! The following questionnaire aims to help the reader to consolidate the theoretical and practical notions just exposed, through an exercise with playful and at the same time formative modalities.

Knowing and understanding the functioning of the bond market and its application areas can be quite difficult.

The test is designed to return to some of the most important steps of this guide, in order to strengthen the fundamental concepts. Below you will find a series of multiple-choice questions, which you will have to answer by indicating the correct sentence. At the end you will be able to read the solution keys to the questions.

1 - What is a bond?

a) An investment instrument of exclusively banking origin, which obliges the investor towards the issuer.

b) An investment instrument issued by a public or private entity, which gives the holder the right to obtain repayment of the capital lent, together with payment of the coupon.

c) A derivative instrument which offers the right but not the obligation to collect a claim on maturity, together with a coupon payment.

d) An ETF fund unit that collects credit issues from public and private entities to distribute coupons to investors.

2 - What is the typical time orientation of an investor who is looking for security over time, i.e. without speculative purposes?

a) Medium and long term.

b) Short term.

c) Very short term.

d) They are purchased with the idea of holding them in the portfolio forever.

3 - Which of these can be considered a disadvantage of bond investments that have not matured?

a) The annual coupon payment, rather than the capital appreciation

b) The stability of the yield for fixed rate bonds.

c) The illiquidity of the secondary market.

d) The failure to launch a new product if the issuer is represented by a private entity.

4 - Which of the following groups are existing bond types?

a) In the money, at the money, out of the money.

b) Fixed yield, indexed yield, zero coupon.

c) Etf, hedge or balanced.

d) Alpha, beta or gamma.

5 - What are warrant bonds characterized by?

a) The presence of an appendix that guarantees the right but not the obligation to buy a certain number of shares at a fixed price.

b) From the convertibility of bonds into shares.

c) From the quotation in the derivatives market.

d) From any of the preceding points.

6 - What are secuirized bonds?

a) They are securitized securities, characterized by the transfer of credit to subscribers other than the original ones.

b) These are particularly secure bonds, because they are guaranteed by a third party.

c) They are bonds thus defined because they are associated with a derivative security called a warrant.

d) They are government bonds, characterised by the transfer of the claim to the government if the owner does not legitimise its possession within 10 years.

7 - Why is it important to buy securities characterized by liquidity on the market?

a) For the higher yield;

b) For the longest duration;

c) For the highest rating at issuance;

d) To be able to sell them more easily in case of need.

8 - What are convertible bonds?

a) Short-term debt securities convertible into long-term securities.

b) Debt securities convertible into equity securities;

c) debt securities convertible into ETF funds;

d) None of these.

9 - What are bond ETFs?

a) They are mutual funds specialised in replicating a benchmark composed of bonds.

b) A set of indices representing the best international bonds;

c) Mutual funds created with the aim of beating the performance of bonds taken as benchmarks;

d) None of these;

10 - What are rating agencies?

a) Consortia of banks and financial institutions created to reduce the cost of brokering bonds on international markets;

b) Rating agencies that operate by judging bonds through the publication of ratings and specialist studies;

c) Technical analysis agencies able to send a series of operational signals to their subscribers for the implementation of speculative trading strategies on bonds;

d) A series of market monitoring agencies operating as market makers, whose aim is to ensure the liquidity of the bond market in all situations and contexts.

Solutions

1) B

2) A

3) C

4) B

5) A

6) A

7) D

8) B

9) A

10) B

Table of contents

• Cover
• A SIMPLE APPROACH TO BOND TRADING. The introductory guide to bond investments and their portfolio management
• Table of contents
• Disclaimer
• Introduction
• General considerations on bonds
• In-depth definition
• Advantages of investing in bonds
• Disadvantages of bond investments
• General taxonomy of bonds
• The warrant bonds
• Government bonds
• Corporate bonds
• Securitized bond
• The selection and purchase of bonds
• Analysis of bond liquidity
• Yield analysis
• Risk analysis
• Analysis of financial duration
• Bond portfolio management
• ETFs Bonds
• Virtual trading in bonds
• Last tips
• Conclusion
• Self-assessment test
• Solutions