Inflation–linked Bonds and Structures
Objectives
This course is primarily designed to increase the awareness of the concept of inflation as a separate asset class. It introduces the main concepts related to inflation, the various inflation – linked structures, the different market participants and their respective motivations.
Target Audience
This course is suitable for anyone with an understanding of the fundamental concepts of finance and fixed income. An understanding of bond pricing and market risk (i.e. duration / DV01) is assumed.
Length and Structure of the Course
The course consists of two days of lectures and case studies. Each day typically consists of three or four 90 minute session with coffee breaks in the morning and afternoon and a lunch break in the middle. There is no exam for this course but candidates will get a certificate of attendance.
Course Tutor
Neil Schofield
Neil is a visiting fellow at the University of Reading and is a freelance training consultant. From 2001 to 2008, he was global head of financial markets training at Barclays Capital in London. He was responsible for the design and delivery of a large number of seminars in a variety of different asset classes to many different audiences. Previous to that he was a director at Chisholm Roth training in London and has also held positions at Chase Manhattan Bank as well as Security Pacific Hoare Govett (now trading as Bank of America). Neil has over 20 years of experience in financial markets. In 2007, he published his first book “Commodity Derivatives” and is currently in the process of writing a second “Relative Value in Financial Markets”.
Course Outline
Session 1 - Inflation fundamentals
- The main jargon associated with inflation markets
- The Fisher equation
- Factors that influence real yields
- The composition of the main inflation related indices
Session 2 - Inflation bonds
- Inflation maths (the Canadian model)
- Net carry
- Seasonality
Session 3 - Inflation swaps
- Zero coupon
- Asset swaps
- Real rate swaps
- Year – on – year swaps
- Total return swaps
Session 4 - Inflation options
- Caps, floors, swaptions
- Options on TIPS
- Breakeven options
- Volatility
Session 5 - Trading inflation
- Effective duration and beta
- Directional real yield trades
- Breakeven inflation trades
- Real yield curve trades
- Breakeven curve trades
- Real yield and breakeven forward trades
- Intra-market transactions
Session 6 - Corporate issuance
- Identify the different types of issuer that may benefit from inflation – linked liabilities
- Pricing inflation issues
- How inflation derivatives could be used to derive an optimal inflation exposure
Session 7 - Institutional exposure to inflation
- The impact of inflation on a portfolios efficient frontier
- Vanilla investment structures
- Structured solutions
- Hybrid solutions
Session 8 - Pension fund exposures
- Defined benefit vs. Defined contribution schemes
- Identifying the inflation exposure
- Inflation – linked swap solutions
For more information
This course is available on a group booking basis only, for more information please email ibs@icmacentre.ac.uk.
