Journal of Fixed Income最新文献

{"title":"Par Munis: Sub-Par Performance","authors":"A. Kalotay, R. Davidson","doi":"10.3905/JFI.2021.1.119","DOIUrl":"https://doi.org/10.3905/JFI.2021.1.119","url":null,"abstract":"It is well recognized that institutional municipal portfolio managers prefer premium bonds to those selling near par. This article shows that such aversion to par bonds is justified because they are expected to underperform comparable premium or discount bonds in the near term. The extent of the underperformance depends on the shape of the yield curve and is positively correlated with the level of expected interest rate volatility. The underperformance is attributable to tax considerations. When an investor purchases a municipal bond (muni) below par, the resulting gain is taxed at maturity, and the price is depressed by the present value of the tax. This tax effect amplifies the interest rate sensitivity of discount munis. Munis selling near par are also negatively convex; the potential decline attributable to higher interest rates exceeds the increase stemming from commensurately lower rates. The underperformance of near-par munis relative to those selling at a high premium (or at a deep discount) arises from the resulting combination of extended duration and negative convexity. The changing value of tax liabilities creates a unique challenge in determining interest rate sensitivity and expected return—which conventional analytics fail to recognize. The tax-neutral analytics used in this article not only incorporate the value of future tax costs but also provide an accurate method for predicting muni price changes and investment returns. Key Findings ▪ Because of their negative convexity, municipal bonds (munis) selling near par perform poorly relative to comparable premium and discount bonds. Negative convexity arises from the so-called de minimis tax effect, which further depresses the price once it falls below par. ▪ The expected underperformance depends on the shape of the yield curve and the volatility of the interest rates. Portfolio managers whose performance is based on market prices should avoid par munis in favor of those selling at a high premium. ▪ Tax-neutral option-adjusted spread (OAS) technology is essential for the proper analysis of near-par munis; conventional OAS underestimates their duration and completely misses their negative convexity.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"35 - 47"},"PeriodicalIF":0.0,"publicationDate":"2021-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44429724","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"A Bird’s-Eye View of the US Credit Rating Industry","authors":"M. Livingston, Gina Nicolosi, Lei Zhou","doi":"10.3905/JFI.2021.1.120","DOIUrl":"https://doi.org/10.3905/JFI.2021.1.120","url":null,"abstract":"Using regulatory disclosures of rating performance statistics, this article provides a comprehensive survey of the US credit rating industry. First, the industry competitive landscape is examined, demonstrating a general increase in competition since 2006. Second, the article documents substantial rating accuracy variations across asset classes but no significant rating quality disparities among credit rating agencies (CRAs). In addition, an investor-paid CRA does not distinguish itself from issuer-paid CRAs in rating quality. Third, a negative correlation is found between CRA market shares and rating accuracy, highlighting the importance of increasing industry competition. Key Findings ▪ The US credit rating industry has become more competitive since 2006. ▪ There is negative correlation between credit rating agency market shares and rating accuracy. ▪ There are substantial rating accuracy variations among different asset classes.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"68 - 99"},"PeriodicalIF":0.0,"publicationDate":"2021-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46645612","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Testing the Forecasting Ability of Multi-Factor Models on Non-US Interbank Rates","authors":"D. Tunaru, F. Fabozzi, Frank J. Fabozzi","doi":"10.3905/JFI.2021.1.118","DOIUrl":"https://doi.org/10.3905/JFI.2021.1.118","url":null,"abstract":"This article examines the forecasting performance of continuous-time multi-factor models, in comparison with other parsimonious models, for the term structure of interbank rates in the UK, Europe, and Japan. The article employs two general dynamic frameworks with different factor structures: the generalized Chan-Karolyi-Longstaff-Sanders family of models and the arbitrage-free dynamic Nelson-Siegel family of models. Applying a battery of accuracy measures and a range of formal tests of forecasting superiority, this research provides evidence that extended multi-factor models demonstrate good out-of-sample forecasting performance for the short segment of the yield curve. However, for the euro and in part for the yen, random walk forecasts consistently pass various tests, indicating a higher level of market efficiency compared to the pound sterling interbank market. Key Findings ▪ For the term structure of interbank rates in the UK, Europe, and Japan, more complex continuous-time models that include more factors are superior in terms of predictive power to models with less factors or discrete-time models. ▪ Based on a battery of accuracy tests and a range of formal tests, extended multi-factor models demonstrate good out-of-sample forecasting performance for the short segment of the yield curve. ▪ For the euro and in part for the yen, random walk forecasts consistently pass various tests, indicating a higher level of market efficiency compared to the pound sterling interbank market.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"7 - 33"},"PeriodicalIF":0.0,"publicationDate":"2021-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45742769","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"How a New Bond Issuance Affects the Liquidity of a Bond Portfolio","authors":"Fan Chen, Duane R. Stock","doi":"10.3905/JFI.2021.1.117","DOIUrl":"https://doi.org/10.3905/JFI.2021.1.117","url":null,"abstract":"Previous research describing corporate bond liquidity tends to focus on the effects on liquidity of factors such as bond age, bond credit risk, size of issuance, and regulation of trading. The article notes that many firms issue bonds when previous bonds are still outstanding and also examines how the new bond issuance affects the liquidity of the preexisting corporate bonds. One might expect the liquidity of the preexisting bonds to improve because of the greater quantity of very similar bonds outstanding or the increase in public information about the firm. However, investment bankers may aggressively market the new issuance, which may diminish the liquidity of the preexisting bonds. The article concludes that the former effect dominates and that the improvement in liquidity is more significant when newly issued bonds offer a longer maturity than preexisting bonds. Key Findings ▪ The liquidity of preexisting bonds tends to increase when a new bond issuance by the firm becomes available. ▪ The increase in liquidity as a result of a new bond issuance tends to be stronger when its maturity is longer relative to that of preexisting bonds. ▪ When the liquidity of preexisting bonds increases in response to a new issuance, the effect is temporary and diminishes over time.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"128 - 151"},"PeriodicalIF":0.0,"publicationDate":"2021-07-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48535994","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Credit Risk in a Pandemic","authors":"H. Byström","doi":"10.3905/JFI.2021.1.116","DOIUrl":"https://doi.org/10.3905/JFI.2021.1.116","url":null,"abstract":"Using different measures of how the Covid-19 pandemic progresses, the article confirms that the level of credit risk among US blue chip companies increases in tandem with the spread of the Covid-19 virus. The credit risk escalates dramatically during the pandemic but is still short of the levels seen during the 2008–09 Global Financial Crisis. In addition, the weekly ups and downs in credit risk and virus impact are significantly positively correlated throughout the pandemic. Furthermore, Basel II capital requirements rise drastically when the pandemic strikes but, again, not to the levels in evidence during the Global Financial Crisis. Key Findings ▪ Two separate markets, the equity market and the credit (derivatives) market, are used to assess the level of credit risk. The level of credit risk among US blue chip companies increases in tandem with the spread of the Covid-19 virus. ▪ Using different measures of how the Covid-19 pandemic progresses, the weekly ups and downs in credit risk and virus impact are significantly positively correlated throughout the pandemic. ▪ The Basel II capital requirements increase significantly when the pandemic strikes but not to the levels seen during the 2008–09 Global Financial Crisis.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"48 - 67"},"PeriodicalIF":0.0,"publicationDate":"2021-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41580756","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Editor’s Letter","authors":"Stanley J. Kon","doi":"10.3905/jfi.2021.31.1.001","DOIUrl":"https://doi.org/10.3905/jfi.2021.31.1.001","url":null,"abstract":"","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":" ","pages":"1"},"PeriodicalIF":0.0,"publicationDate":"2021-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46192818","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"A Key Rate Approach to Replicating Annuities with US Treasury Funds","authors":"Joseph R. Prendergast","doi":"10.2139/ssrn.3767632","DOIUrl":"https://doi.org/10.2139/ssrn.3767632","url":null,"abstract":"Prendergast (2021) develops a methodology that enables retail investors to structure annuities using commonly available US Treasury Exchange Traded Funds (ETFs). This article extends that methodology through the use of key rate durations. Back tests and stress tests show that the use of key rate durations substantially enhances the ability of the portfolio of ETFs to replicate an annuity in an environment where yield curves undergo a variety of slope and curvature changes over time. TOPICS: Fixed income and structured finance, exchange-traded funds and applications, quantitative methods, statistical methods Key Findings ▪ Relative to using single durations, the use of key rate durations dramatically improves the ability of an annuity replicating portfolio to provide the desired annuity payments while achieving a zero-ending balance. ▪ This article provides a means for retail investors, or their advisors, to design an annuity that is robust to interest rate changes without paying sizable fees to life insurance companies and other annuity providers.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"65 - 79"},"PeriodicalIF":0.0,"publicationDate":"2021-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45761933","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Editor’s Letter","authors":"Stanley J. Kon","doi":"10.3905/jfi.2020.30.3.001","DOIUrl":"https://doi.org/10.3905/jfi.2020.30.3.001","url":null,"abstract":"","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"30 1","pages":"1"},"PeriodicalIF":0.0,"publicationDate":"2020-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44865976","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Predicting Future Yields and Risk Premia: The Blue-Dot Affine Model","authors":"R. Rebonato, R. Ronzani","doi":"10.3905/jfi.2020.1.099","DOIUrl":"https://doi.org/10.3905/jfi.2020.1.099","url":null,"abstract":"The authors present a new affine model that can predict future yields and risk premia in the monetary conditions of the past decade more convincingly than current state-of-the-art statistical models. Despite making use of very different sources of information, it produces remarkably similar changes in risk premia as the most popular statistical return-predicting factors. However, it predicts very different—and, they argue, more believable—levels for risk premia and expectations. The model is extremely parsimonious, is financially motivated, fits market yields accurately with very few interpretable parameters, and naturally recovers important qualitative features of the joint ℙ and ℚ dynamics of yields. TOPICS: Analysis of individual factors/risk premia, factor-based models, statistical methods Key Findings • A new affine model of the term structure is shown to give more plausible estimates of risk premia and expectations than the current state-of-the-art yield curve statistical models. • The model uses information from the Fed expectations of the future federal funds rate. • The model is financially justifiable, very parsimonious, and fits observed market yields very well.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"30 1","pages":"21 - 5"},"PeriodicalIF":0.0,"publicationDate":"2020-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48931741","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}

{"title":"Performance Measurement in the Life Insurance Industry: An Asset-Liability Perspective","authors":"Alexander Braun, Florian Schreiber","doi":"10.3905/JFI.2020.1.102","DOIUrl":"https://doi.org/10.3905/JFI.2020.1.102","url":null,"abstract":"Established risk-adjusted investment performance measures such as the Sharpe Ratio, the Sortino Ratio, or the Calmar Ratio have been developed with an exclusive focus on the mutual and hedge fund industries. Consequently, they are less suited for liability-driven investors such as life insurance companies, whose portfolio choice is materially affected by the substantial interest rate sensitivity of their long-term contractual obligations. In order to tackle this limitation, we propose an Asset-Liability Sharpe Ratio, which is theoretically motivated, easy to estimate, incentive compatible, and conveys information that is not included in existing measures. TOPICS: Performance measurement, risk management Key Findings • Established risk-adjusted investment performance measures such as the Sharpe Ratio, the Sortino Ratio, or the Calmar Ratio have been developed with an exclusive focus on the mutual and hedge fund industries. • Consequently, they are less suited for liability-driven investors such as life insurance companies, whose portfolio choice is materially affected by the substantial interest rate sensitivity of their long-term contractual obligations. • In order to tackle this limitation, we propose an Asset-Liability Sharpe Ratio, which is theoretically motivated, easy to estimate, incentive compatible, and conveys information that is not included in existing measures.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"30 1","pages":"109 - 127"},"PeriodicalIF":0.0,"publicationDate":"2020-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42582084","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}