First, what do you mean by "bonds"? Corporates (high yield or investment grade),structured securities (ABS, RMBS, CMBS, CLO's, CBO's, etc), treasuries, municipals, sovereigns, etc are all "bonds" but each is very different from the others. So while the math behind valuations is largely the same (though definitely not identical), the drivers of value in each sector are decidely different. I traded high yield corps, ABS (non-real estate ABS), leveraged loans, CLO's, CBO's, and CDS for a bit over 8 years and managed debt portfolios (which included rate hedging using treasuries and swaps) for 13 years in total. What specific questions do you have and I'll try to answer as time allows.
Convexity is the second derivative of the price of the bond wrt to yield (so a derivative of duration, which is the first derivative). Have you tried looking here? http://en.wikipedia.org/wiki/Bond_convexity For WAL, look here: http://en.wikipedia.org/wiki/Weighted-Average_Life
I PMed you. Particulalry focusing on munis right now, so any direction or guidance into taking the necessary steps would be very invaluable to me. I've googled on the advance bond analytics but just have uncertainty as most sites touch upon it very briefly. If I was a blank slate, what would you do in getting me on the up leg if I wanted to venture into fixed incomes, particularly MUNIs?
I have, but I think I am just too stupid. What steps can I take to progress to this level of understanding?
Froglet, Not a bond trader nor have the strong working knowledge that some of the other posters here. But, I can make a suggestion for comprehending this and other areas of finance. Just make a point of everyday reading the newspaper, the best being the WSJ. Just pick it up and everyday read the credit market section. Most days they will just discuss today's treasury auction or the past auction, or the upcoming auction. But, read it everyday. As the news breaks & pertains to something, they'll mention topics or whatever. Google stuff that you read that catches your interest. But, make sure you do it everyday. Get a subscription. My point is that thru rout process of reading about topics and concepts over and over things will just In time click. Like you'll have little eurekas in understanding. They'll mention convexity for the umpteen time & you'll be like I GET IT NOW !!! When I was trading listed it was mandatory on the desk. Gradually over time I began to just grasp things & listen to these guys, they know their stuff. My 2 ticks
I'm not in fixed income but know a couple of people that do trade taxable fixed income (corporate bonds) for investment banks. Here are their secrets: They make almost all of their money on the spread. They buy from the client and then sell it pocketing the difference When they do prop trading, they buy it and hope it goes up. If it doesn't go up they put it in their inventory. If they don't sell within 20 days, their risk managers make them sell it no matter what. They don't read research, they don't write research, they don't calculate duration, convexity or anything else. That kind of stuff is needed for fixed income fund managers Sorry if this isn't relevant. Kind of seemed like the conversation was going into more of the "fund" variation and not trading but I wasn't sure
I hold a sizable bond portfolio. I'm much of an investor though but this produces majority of profits each year, producing of 50% returns. If you're in the know, bonds blow away any equities or futures trading while assuming greatly reduced risks.