SEMESTER: Fall 2018

This course is dual-listed with EWMBA Program

COURSE NUMBER: MBA236I.1

COURSE TITLE: Fixed Income

UNITS OF CREDIT: 2 units

INSTRUCTOR: Satish Swamy

E-MAIL ADDRESSSatish.swamy@ucop.edu

CLASS WEB PAGE LOCATIONS: bCourses

PREREQUISITE: MBA203 – Core Finance

CAREER FIELD: This course is relevant to anyone interested in pursuing a career in investment management.

CLASS FORMAT:  Lectures, exercises, case study and fixed income project

REQUIRED READINGS: Textbook [and course reader]

BASIS FOR FINAL GRADE: [Project, Midterm, final exams, and class participation.]
Your overall course grade will be based on: project, mid-term, finals and class participation.
Project:                        25%
Class participation:      15%
Mid-term:                    30%
Finals:                          30%

ABSTRACT OF COURSE'S CONTENT AND OBJECTIVES: Global Fixed-income markets are bigger in size than stock markets. They represent a vitally important asset class and is more often a leading indicator to analyze market risk. Institutional investors have come a full circle from higher to lower and back to higher interest rates.  After a significant shift into equity in the 80s and 90s by endowments, pension funds and insurance companies, the tide shifted to bonds for the past 25 years. But bonds are risky. Bond vigilantes in the US are predicting the onset of long-term rising rates as fears of both inflation and unwinding of Federal Reserve balance sheet are creeping up.  The goal of this elective is to cover the dynamic role of fixed income in large institutions and more importantly analyze sources of risk and return.

While the course is firmly grounded in a quantitative and analytical approach, as a practitioner, I will endeavor to place our subject matter in the relevant real world context.  Each lecture will begin with a discussion of current market/economic conditions and how they relate to the topic at hand. For example, the discussion on subprime mortgage crisis and the role of leverage leading up to the financial crisis will be covered in great detail. Relevant articles appearing in the Financial Times, Wall Street Journal and NY Times will be discussed and market implications assessed.    Guest speakers will include the CIOs of Fixed Income for Blackrock and Goldman Sachs Asset Management, Treasurers of leading tech companies in the Bay Area and other practitioners in the fixed income markets.
The goal of this course is to provide a solid understanding of the five major debt markets (Corporate; Government and Agency; Municipal; Mortgage backed, asset backed, and collateralized debt obligation; Funding) and of their recent derivative appendices (swaps, CDS). The course will describe the major players in the market, key institutions, broad empirical regularities, and analytical tools used for pricing and risk management.
The course will have analytical as well as institutional sections as both are needed to describe the appropriate framework and analyze the corresponding pricing and risk management tools and related issues. The course covers many topics organized around a theme. For some lectures, class notes will be used in addition to or in lieu of references.  

Outline of Key Topics:
- Overview of Debt Securities: What are debt securities? What are their sources of risk and return? Historical performance of fixed income securities.
- Major players and their functions: United States Treasury, Federal Reserve Banks, Primary Dealers, Inter-Dealer Brokers (IDB), Rating agencies, Sell-side and Buy-side institutions.
- Bond mathematics: a) price and yield conventions, b) PVBP, Duration (modified, effective and key-rate), convexity, and negative convexity. Trading applications: spread trades, bullet vs barbell positions.
- Term Structure Theory: Spot rates, forward rates, par yields, modeling interest rates and pricing bonds.
- Structural models of default: Modeling credit risk, credit spreads and their behavior, Distance to default, forecasting rating changes, high-yield and investment-grade debt markets
- Government, Agency and Corporate markets
- Municipal markets
- MBS: Structure of MBS markets, prepayments, Option Adjusted Spreads, Pass-through securities, REMICs, risk measures
- Asset-backed markets
- Derivatives: Treasury futures, Interest Rate Swaps, Options on Swaps and Single-name credit default swaps
- Clearinghouses vs exchanges vs OTC markets

Fixed Income Portfolio Management Group Project: A real time fixed income project to analyze risk and return in the current macro environment that incorporates central bank monetary policy, yield curve dynamics, supply and demand for different types of fixed income securities, and the role of bonds in a constant or higher yield environment. 

Required texts:
Fixed Income Securities: Tools for Today’s Markets, 3rd edition, by Bruce Tuckman and Angel Serrat, published by Wiley.
The Handbook of Fixed Income Securities, 8th edition by Frank Fabozzi

Attendance:
Please attend all classes and do not arrive late. Class participation is an important of the learning process and the grade.

BIOGRAPHICAL SKETCH: Satish Swamy is Managing Director in the Office of the Chief Investment Officer, Regents of the University of California for the past 20 years and has experience managing fixed income portfolios for over 25 years.  He has experience in active management of $26 billion of fixed income assets in pension, endowment, working capital and defined contribution portfolios. Assets under management range from money market securities, Global bonds, FX, U.S. Treasuries, MBS, investment-grade corporates to high yield and emerging market bonds  He earned his MBA in Finance from the University of Southern California, MSEE from the University of Houston and BS in Engineering from Bangalore, India.  He is also a CFA charter holder.