ICM243-Bond Market Pricing and Trading Strategies

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Module version for: 2017/8

Module Convenor: Dr Andrew Bevan

Email: a.bevan@icmacentre.ac.uk

Summary module description:

This module focuses on the pricing of bond and bond derivative instruments. It takes a real-world approach to the formulation of bond strategy, enabling students to relate the teaching materials to current market situations. 

The main aims of the module are to identify the fundamental determinants of short- and long-term interest rates, learn how to monitor developments in interest rate markets and employ commonly used trading strategies. The course will be based around the work of a research department in an investment bank or asset manager when formulating interest rate strategy. The lectures will provide: (1) the fundamentals of market pricing, (2) practical examples of current market situations, and (3) identification of trading and portfolio strategies. Seminars will focus on market pricing conventions and worked examples.

Assessable learning outcomes:
By the end of the module it is expected that students will:
• Be aware of the main aspects of the economic theories of the determination of interest rates and corporate credit spreads.
• Be capable of analyzing economic situations to determine the likely implication for various assets in the interest rate markets
• Be familiar with the principal strategies used in trading short rates, long rates and managing bond portfolios

Additional outcomes:
The course is a natural extension to the modules currently taught on bond mathematics, credit risk and the pricing of derivative instruments. It aims to supplement quantitative skills with the knowledge of the economics of interest rates necessary to formulate trading strategy, utilising practical real-world examples.

Outline content:
1. Flow of Funds and the Economics of Interest Rates
2. Monitoring Central Banks and the Determination of Short Rates
3. Pricing and Trading of Short Rate Instruments
4. Fundamentals of Bond Pricing, Duration and Convexity
5. Yield Curve Trading Strategies
6. Trading of Bonds, Bond Forwards and Futures
7. Pricing and Trading of Interest Rate Swaps
8. Corporate Bond Spreads and the Business Cycle
9. Managing Benchmarked Global Bond Portfolios
10. Absolute Return Fixed Income Portfolio Management

Brief description of teaching and learning methods:
The core theory and concepts will be presented during lectures. Seminars will be based around set questions and preparation for examinations.

Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 8
Guided independent study 172
Total hours by term 200.00
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Written exam 70
Class test administered by School 30

Other information on summative assessment:
Mid-Term Examination: 30%. Students will sit a mid-term multiple-choice examination after Lecture 6. The paper will consist of twenty questions and the time allowed will be one hour.

Final Examination: 70% - Answer two questions out of four in one and a half hours.

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Length of examination:
Answer two questions out of four in one and a half hours

Requirements for a pass:
50% overall grade

Reassessment arrangements:
By written examination only, as part of the overall examination arrangements for the MSc programme

Additional Costs (specified where applicable):
1) Required text books: 1. Title: An Introduction to Bond Markets, (Fourth Edition)
Author: Moorad Choudry (£36.00, paperback)
ISBN-13: 978-0470687246
Publisher: John Wiley &Sons Ltd, UK (2010)
2. Title: Fixed Income Markets and Their Derivatives, (Third Edition)
Author: Suresh Sundaresan
ISBN: 978-0-12-370471-9 (£62.99 hardback, also available in paperback)
Publisher: Academic Press. Elsevier (2009)
3. Title: Fixed Income Securities, (Third Edition)
Author: Tuckman, Bruce (£65.00, hardback)
ISBN-10: 0470904038
ISBN-13: 978-0470904039
Publisher: Wiley Finance, New Jersey (2011).

2) Specialist equipment or materials:
3) Specialist clothing, footwear or headgear:
4) Printing and binding:
5) Computers and devices with a particular specification:
6) Travel, accommodation and subsistence:

Last updated: 31 March 2017

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