I work on an equity desk for an investment bank but I want to expand my product knowledge into the rates market. I really want to learn the foundation of Fixed Income relative value but what should be the first step in order to learn? Should I start by trading different liquid points of the treasury curve in the futures market?
I know there tons of different products in the rates market, ICBS, basis swaps, cash, futures, etc... So for this example, let's say the 5 year futures and 10-year futures is steeping, so I buy the front leg and short the back leg of the curve... Is that considered relative value trading?
Also how do I trade off-the-run bonds... Is that through swaps, futures, cash?
So trading is one thing but is knowing how to price instruments necessary to learn how to trade relative value? Like we know we can price a coupon paying bond with a bundle of zero coupon bonds, but is knowing the math component really necessary?
As far as synthetically constructing forward starting swaps to trade TU, FB, TY and TN invoice spreads, what would be beginning basis to learn what I just mentioned?
Read books first... For instance, Antti Ilmanen's "Understanding the Yield Curve" and Tuckman's "Fixed Income Securities".
thanks. it seems like you and ironnchef are the best when it comes to rates haha.
how about this book? http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118477197.html
Ha, as it happens, I know the authors personally... Small world, eh.
I am not sure about this book as a starting point. I would suggest that the other two are better fit for the purpose.
Got it thanks. The market just opened so I'm a bit busy right now but I'll get on it. I asked Ironnchef this but I wanted to know your insight. So I come from a prop trading background but not in rates. I can go in the futures bond market right now and make money but for me... it's not good enough. I really want to understand the relative value trading side of rates. As I'm reading the book I just mentioned, there's a big emphasis on PCA but it seems like linear algebra is involved. I know stats but is that enough to satisfy relative value trading? For example, Jennifer Fan does RV in commodities at Millennium, if you had to guess, do you think the average RV trader uses PCA because it says PCA can be used for variety of asset classes
Recommended books on the technicalities of Rates? A Macro PM's advice would be greatly appreciated (Originally Posted: 03/20/2017)
Hi guys! I am trying to learn more about the world of Rates and I was just wondering if any Macro PM out there would be able to recommend a couple of books. I was in particular looking to get a more technical/ mathematical understanding of rates, starting from the basic topics and then moving up to more advanced ones.
The book I've read so far is "Interest Rate Markets" by Siddhartha Jha.
Thanks a lot for your help!
As always my two recommendations: "Understanding the Yield Curve" papers by Antti Ilmanen "Fixed Income Securities" by Tuckman
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