FIXED INCOME
What is fixed income:
à type of investment that provides regular, fixed payments to the investor over a specified
period of 9me. It is an asset class that typically includes investments like bonds, cer9ficates
of deposit (CDs), and other debt securi9es. Fixed income investments are oCen considered
more conserva9ve and less risky than equi9es (stocks) because they offer a predictable
stream of income and have a predetermined maturity date.
Bonds:
• Treasury bonds
• Corporate bonds
• Municipal bonds
• Savings bonds (issued by U.S Department of the Treasury)
FIXED INCOME: THE ROOTS OF THE BOND MARKET
Intro:
à Fixed income is another word for the bond market, plays the crucial role of seLng the
price of borrowing and lending to governments, businesses, and consumers.
à SeLng of interest rates depending on the interplay between bonds prices, bond yields,
infla9on, and creditworthiness.
Size of the bond market:
à biggest market in the world
à end of 2016:
• World bond market was worth $101T VS. only $65T worth of stock markets.
• Existence of 2.1 million gov and corporate tradable bonds.
• U.S gov bond market plays an important role in global finance: worth $14T à largest
in terms of value.
• U.S corporate bond market is the second largest worth $8T.
History of the bond market:
à dollar centricity of the currency market because the US holds a fiCh of the world bond
market.
à rela9vely recent phenomenon (like the FX market): born out of interest rate liberaliza9on
and the removal of capital controls aCer the 2WW because easier for gov to borrow.
à biggest segment is the gov bond market, aka the sovereign debt market: used to raise
money for only spending on war and jus9ce before.
Now, with the advent of the welfare state, government spending has risen steeply (now
funding educa9on, healthcare, etc.): more than tripled between early 20th and early 21st
century (13% to 40%). In Europe, it’s higher: more than ½ of Danish GDP.
Government budget details:
à Budget deficit: when the government spending is over the gov income from taxes è need
to borrow to fill the gap.
à France has run a deficit every year since 1972.
à Between 1940s and 1970s, U.S gov taxa9on and spending were in synch.
Commenté [DA1]: delivered by banks and credit unions —>
allows individuals to deposit a specific amount of money for
a fixed period of :me at a predetermined interest rate
Commenté [DA2]: one of the safest investments --> backed
by the full faith and credit of the US. gov.
—> high liquidity : easily bought and sold in the secondary
market
—> longer maturi:es, ranging from 10 to 30 years or more
—> lower yields than corpo or municipal bonds but lower
risk
Commenté [DA3]: —> raise capital of companies
—> credit ra:ngs from agencies : Moody’s or Standard &
Poor’s ==> assess the issuer’s risk
—> various maturi:es
—> less liquid than Treasury bonds
—> higher yields but higher credit risk
Commenté [DA4]: Issued by U.S Dep of Treasury
—> 2 main types :
* Series EE : purchased at face value, fixed interest rate that
is added to the bond’s value monthly and compounded
semiannually
Redemp:on aSer 5 years
* Series I : earn combined fixed interest rate and infla:on
rate ==> compounded semiannually
Redemp:on aSer 12 months
Commenté [DA5]: the growth of governments has been the
main factor giving rise to the world bond market
Commenté [DA6]: transi:on from a system where the gov
sets or heavily influences interest rates to a system where
interest rates are determined by market forces (supply and
demand for capital)
Commenté [DA7]: * growing influence of economic theories
that emphasized the benefits of free markets and limited gov
interven:on
* need to s:mulate economic growth and aYract investment
to recover from WW2 catastrophy
* BreYon Woods System (1944): new interna:onal monetary
system where exchange rates were fixed but adjustable
Commenté [DA8]: * access to broader capital markets:
diverse sources of funding
* aYrac:on of private capital: compe::ve returns for
investors
* reduced financial repression that kept interest rates
ar:ficially low
à Between 1997 and 2001 (the Clinton Years): last 9me the U.S ran a meaningful surplus,
thanks to the post-Cold War “peace dividend” and high tax receipts from the dotcom boom.
à 2008 financial crisis: U.S gov ran the largest absolute deficit of any country in history
($1.4T in the fiscal year 2009).
Government indebtedness:
Commenté [DA9]: The "peace dividend" refers to the
financial savings and resources that became available to
countries, par:cularly the United States, aSer the end of the
Cold War due to reduced military expenditures and the
realloca:on of funds from defense to other domes:c
priori:es such as social programs and infrastructure.

à 1989: U.S na9onal debt stood at $2T è prompted a U.S real estate developer to install
the U.S na9onal debt clock near Times Square.
The clock ran out of digits when the debt broke through $10T in September 2008 è built a
new one.
à 2023: over $33T (COVID-19 Pandemic, Trade War with China, 2008 Great Recession) vs
$3T for French public-sector debt for the first 9me in history. (112% of its GDP).
WHO LENT UNCLE SAM SEVERAL TRILLION DOLLARS AND WHY?
Foreign owners of government debt:
à end of 2016: $6T out of $14T of ac9vely traded U.S gov debt owned by non-U.S en99es.
à Japan and China owned approxima9vely $1T each (about 7%).
à Why do they own such a large quan9ty?
• Need FX reserves for exchange rate management: to defend their currency or scare
off speculators (strengthen currency) or to weaken currency.
• Safest financial asset on earth: strong reputa9on for creditworthiness and “exorbitant
privilege” of being able to print the world’s reserve currency, so can pay back by
increasing taxes (has the right to tax the ci9zens and businesses of the wealthiest
country on earth) or simply prin9ng its widely trusted cash.
= Most liquid tradable assets on earth and FX market is U.S. dollar-centric.
à Correla9on between FX reserves and foreign ownership of U.S gov debt.
à Use U.S gov bonds as a safe place to park their FX reserves.
à Investors too during 9mes of turmoil è the VIX (“fear gauge”) is the vola9lity index: when
high, investors are scared.
Commenté [DA10]: The dotcom boom witnessed significant
gains in stock prices, par:cularly in technology and internet-
related companies. As investors profited from the rising stock
market, they incurred capital gains taxes when they sold
their investments.
Commenté [DA11]: October 2008 - September 2009
Commenté [DA12]: French GDP: growth slows down on 3rd
quarter to 0.1% vs. 0.6% on second quarter
U.S GDP: increased at 4.9% annual rate in the third quarter
Commenté [DA13]: Why would a foreign country own U.S
government debt?
* Safe Investment : Treasury securi:es are considered one of
the safest investments in the world
* diversifica:on : central banks and foreign gov hold U.S gov
debt as part of thei foreign exchange reserves
* Exchange Rate Management : if a country wants to
strengthen its currency, it can sell its own currency in
exchange for U.S dollars to purchase U.S gov debt. And vice-
versa

Corporate bonds:
à recent phenomenon but other major segment of the 2.1 million tradable bonds in the Commenté [DA14]: aSer 1980
world (1.6 million are corporate bonds), greater diversity than gov bonds because there are
more large companies that governments in the world.
à vast array of bonds per company (U.S gov issues more than 1.000 bonds).
à Why do companies borrow in the corporate bond market?
• Saving money: reducing pre-tax profits (over 20%) through interest payments
• Borrowing money for longer terms: banks not keen on making long-term loans

The structure of a bond:

à a coupon: regular fixed amount payments
à a principal: large payment at the end of the loan (what you lent)

Introducing bond yields:

à Fixed income = fixed repayment amounts, provided the borrower pays you back. But
prices fluctuate.
à yield = annual percentage rate, income earned from an investment (used to compare
bonds)
à calcula9on: depends on remaining repayments and bond floa9ng price.

RelaKonship between yields and prices:

à inverse rela9onship: when the price of a bond goes down, the yield goes up.
à perpetual bond: bond which principal is never repaid, i.e has no maturity date. Commenté [DA15]: Issued by gov, corpora:ons or financial
à mechanism: when yields go up (i.e new bonds are offering higher yields), the fixed ins:tu:ons to:
* raise capital
interest payments on exis9ng bonds become less anrac9ve, causing the price of those bonds * risk mi:ga:on: no risk when large repayment at maturity
to decrease because people are selling them to buy bonds offering higher yields. * steady stream of income for investors
à inverse rela9onship to interest rates: when the cost of borrowing money rises, bond
prices fall. Most bonds pay a fixed interest rate that becomes more anrac9ve if interest rates
fall, driving up demand and the price of the bond. Conversely, if interest rates rise, investors
will no longer prefer the lower fixed interest rate paid by a bond, resul9ng in a decline in its
price. They are looking for the best return possible.

Zero-coupon bonds:
à don’t pay regular interest, derive all of their value from the difference between the
purchase price and the par value paid at maturity. Commenté [DA16]: face value of a bond, unrelated to the
à calculate rate of return of a zero-coupon bond: actual value of its shares trading on the open market

• Trading at $950, par value of $1,000

o (1,000 – 950) / 950 *100 = 5,26% return
o In order to match a 10% yield, the bond price would have to decrease to
909.09%

Winners and losers from bond yields:

à High Yields:
• New Lenders: happy as they get higher repayments.
• New Borrowers: unhappy as they have to promise to pay back more to secure loan.

BOND VALUATION DRIVERS

Bond yield calculaKon:

à yields used for bond valua9on.
à compound interest = earning interest on interest payments.
Calcula9on:
• A = P(1+ r/n)^(nt) Commenté [DA17]: A = the future value of the investment
P = the principal amount
à bond yield = the equivalent interest rate on a bank account for the dura9on of the bond.
r = the annual interest rate (as a decimal)
n = the number of :me that interest is compounded per year
Shortcut to calculaKng bond yields: t = the number of years the money is invested for
à either using the Intern Rate of Return func9on on a spreadsheet or looking at Bloomberg
Yield and Spread (YAS) and reading off the pre-calculated yield.
• On Bloomberg:
o Type the name of the security (Rwanda Govt)
o Select the relevant bond and pull up the YAS func9on.
Deciphering bond yields:
On Bloomberg: WB func9on, and blue column is the deposit rates were you to buy the
bonds.
à Corporate bonds are oCen priced rela9ve to government bonds (risk comparison & yield
spread). Commenté [DA18]: « credit spread » represents the
addi:onal yield that corporate bonds offer over government
bonds of similar maturi:es / reflects the compensa:on that
TWO KEY DRIVES FOR YIELDS TO MOVE: CREDIT RISK AND MACROECONOMICS investors require for taking on the credit risk associated with
corporate bonds. Wider spread implies that investors
Credit risk: perceive corporate bonds as riskier, while a narrower spread
suggests lower perceived risk.
à bonds are reliant on the borrower’s ability and willingness to repays. Even government
default on their bonds.
à bond prices today reflect beliefs on repayment likelihood tomorrow: so, pay a lower price
to get the same amount of cash (yield increases).
à when investors doubt the creditworthiness of a borrower, yield move sharply upwards.
à Government default: Argen9na in 2001 ($132B), Ivory Coast in 2011, Ecuador in 2008
à if the market believes that a gov may have trouble paying the money back, the price will
be lower and yield higher è will be more expensive for gov to borrow in the future è bond
market ins9lls fiscal discipline in governments.
Elevated bond yields can force a government into budget cuts or tax hikes è unpopular with
voters.

Credit risk factors:

à investors look at three metrics to keep tabs on gov creditworthiness:
• Debt/GDP
o Gov borrows to build a project è project payments contribute to GDP but
when the debt comes due, debt repayments inhibit GDP growth è the bigger
the debt, the greater the drag on the economy.
o Greece, 2011: debt to GDP spiked up to over 160% è yields peaked at 35%
o US, 1945: debt to GDP 110% but boom of the 1960s è bonomed out at 30%
mid-1970s.
o No pre-determined ra9o: Japan, 2017, higher debt to GDP (235%), yet yield at
around 0% è had the ability to print more yen and purchase gov bonds. Commenté [ADD19]: Higher demand ==> prices rise ==>
bond yields fall
• Deficit/GDP
o Government is living beyond its means.
o Investors are looking at the size of the budget funding gap that needs to be
plugged by the bond market. The lower the %, the greater the gap.
o The higher the deficit, the higher the rate (higher yield to compensate for the
elevated risk).
o No percentage rules.
• Repayment schedule
o Lower term = lower risk = lower annual interest rate è this is temp9ng to
governments as it lowers their interest payments.
o HOWEVER: if takes too much advantage of low interest short-term debt,
lenders can ques9on gov’s ability to repay and demand very high yields.
o BUT not for creditworthy countries (i.e US because can print more $$ and tax
the wealthiest economy).
o Short-term borrowing is risky as it requires large near-term repayments.
Credit risk indicators:
• Credit ra9ngs
o Each credit ra9ng agency has a ra9ng system:
§ Standard & Poor’s : from AAA to D Commenté [ADD20]: Canada, Denmark, Norway
• 7.5% of DDD rated bonds defaulted within 10 years.
• 94% of CCC defaulted within 10 years.
§ 7.5%
o Can see recent credit ra9ng changes on Bloomberg, command CSDR. Green
ra9ng = upgrade, red ra9ng = downgrade è investors pay much anen9on to
changes because ra9ngs have a high predic9ve quality.
o Ra9ng agencies also rate corporate bonds:
§ Lower risk/higher rated corporate bonds = “investment grade”
§ Higher risk/lower rated corporate bonds = “junk”, “non-investment
grade”
o Enron scandal in 2001 è fraud and hid debt in financial reports è BBB+
ra9ng by S&P è fraud surfaced è people lost their economies because stock
prices plummeted.
• Credit default swaps (CDS)
o Since the Enron debacle, new instrument surfaced as an alterna9ve to
monitoring credit ra9ngs è a form of insurance against governments and
corpora9ons going bust.
o More 9mely warning than credit ra9ngs because are real-9me readings. The
higher the spread, the higher the risk.
§ Ex: With Lehman Brothers, the spike preceded the default. Ra9ng
agencies only changed ra9ngs aCer it.
o

Macroeconomics:
• Short-term interest rates
o If short-term interest rates increase, then investors sell their bonds to buy gov
bonds è price of ini9al bond decreases è yield increases and vice-versa.
• Infla9on
o Infla9on has a corrosive effect on the price of fixed-income instruments,
including U.S gov bonds.
o When there’s infla9on, bond prices fall, and yields rise (the same amount buys
less in the future – infla9on erodes the value of bonds).
o When infla9on, purchasing power of coupons and principal is corroded.
o Yields are called nominal not real because you do not adjust the yield
calcula9on for infla9on.
o Borrowers benefit from infla9on (salary rises but monthly repayment not).
o Defla9on: lenders are happy, but borrowers are unhappy. That’s why
governments do not like infla9on (all of them are borrowers).
CONCLUSION:

CENTRAL BANKERS & INTEREST RATES

Central bank mandates:

HOW DO GOVERNMENTS SET SHORT-TERM BOND YIELDS? I.E HOW DO THEY NUDGE THE
ECONOMY TOWARDS SLOW, STEADY GROWTH?
• The happy medium
o Goals of central banks in seLng interest rates is to protect the currency from
infla9on and defla9on è reason for the 2% target.
o Need to find the “happy medium” between infla9on (excessive economic
growth) and defla9on (lack of economic growth).
• Infla9on
o Once infla9on takes hold, it is hard to tame è workers expect prices to
increase è demand pay increases è wages go up è prices raised to pay for
the wages è worker expect prices to increase è and so on.
o Major problem in the 1970s: collapse of the Brenon-Woods agreement gave
governments la9tude to alter their currency exchange rates + oil shocks in
1973 and 1976 è bonds were a terrible investment at the 9me.
o During war 9mes, high infla9on has the biggest impact on consumer goods.
• Defla9on
o Can also lead to a vicious cycle: prices decline è consumers defer purchases
to await lower prices è company revenues decline è let go of workers to cut
costs è less demand è less purchase è and so on.

Central bank decision-making:

HOW DO CENTRAL BANKS GAUGE TO DETECT AN EMERGING INFLATION OR DEFLATION
PROBLEM?
• Infla9on measures
o Central banks loot at GDP deflator, cost of food and energy, monthly CPI Commenté [DA21]: is a widely used economic sta:s:c that
sta9s9c, or core CPE (Core personal consump9on expenditures). measures changes in the average prices paid by consumers
for a basket of goods and services over :me
o But these data sets are historic.
Commenté [DA22]: Fav of the FED
 o So real-9me source of infla9on forecast: TIPS, Treasury Infla9on Protected
Securi9es, exo9c instrument. Do not provide “fixed-income” payments to the
lenders but compensate in the event of infla9on.
o So, compare the price of TIPS and the price of similar non-infla9on-protected
bond. When infla9on, investors buy TIPS, so bigger difference in prices and
yields.
o ILBE func9on on Bloomberg to see infla9on expecta9ons over the next 30
years.
o Small differences in infla9on compound è so big impact on prices.
• The output gap
o Tightness in the economy coincides with infla9on.
o Slackness coincides with defla9on.
o Output gap = (actual GDP – poten9al GDP) / poten9al GDP
o When poten9al > actual = nega9ve output gap, i.e defla9on, i.e
underu9liza9on of an economy’s resources.
o When actual > poten9al = posi9ve output gap.

Central bank toolkit:

WHAT TOOLS DO THEY HAVE AT THEIR DISPOSAL?
• Short-term interest rates
o To combat a posi9ve output gap (i.e infla9on)
o When short-term rates go up, it becomes more anrac9ve to deposit cash è
dissuades consump9on è slow growth and contain infla9on.
o In the US, the FOMC (Federal Open Market Comminee) meets 8 9mes per Commenté [DA23]: responsible for making decisions about
year è in the end, influences all bond prices. monetary policy

o How has, in the past, the manipulaIon of short-term interest rates by a
central bank set the economy back on the right track?
§ When there was a boom, ex 2001 dotcom boom, rates rose, output
gap posi9ve. When bust, 2002 dotcom bust, rates were cut, output gap
nega9ve.
§ ACer the Lehman crisis, sizeable nega9ve output gap è Fed cut rates
Commenté [DA24]: because impact on the US gov bond
prices that influence world bond prices
Commenté [DA25R24]: US gov bonds have:
* Benchmark Status (safe-haven assets)
* Global Reserve Currency: many countries hold U.S
Treasuries as part of their foreign exchange reserves, as USD
is the world’s primary reserve currency.

to nearly 0% for almost 10 years, reducing the gap.

• Statements
o Simply discussing their inten9on about when they may move interest rates è
if different from what the market is expec9ng è bond yields move.
o Example: Ben Bernanke, Chairman of the FED in 2013, announced that would
reduce its purchase of bonds, meaning it would reduce demand for treasuries
and the price of treasuries è the 10-year U.S gov bonds almost doubled from
1.6% to 3.0% over the next four months.

Short-term interest rate esKmates:

à Federal funds futures enable you to observe what the market expects the FOMC to do
next è World Interest Rate Probability on Bloomberg to see the probability of certain future
FOMC decisions.
CONCLUSION:

THE YIELD CURVE & WHY IT MATTERS

Defining the yield curve:

à visual representa9on
of the cost of borrowing
à the yield curve is
posi9ve slope, shorter
maturity bonds have
lower yields than the
longer ones.
à Why is long-term debt
more expensive to
borrowers? Greater
chance of the borrower
going bust + lender more exposed to the corrosive effects of infla9on. Harder to forecast Commenté [DA26]: erodes the real value of the interest
infla9on in the far future. income and principal repayment they receive (infla:on-
adjusted value)

Term premium:
à term premium = difference between the yield on the shorter-maturity bonds and the
long-term maturity bonds = extra yield that investors demand for holding longer-term bonds.

Bond yield forecasts:

à on Bloomberg “bond yield forecasts” by selec9ng BYFC.

HOW DOES THE YIELD CURVE IMPACT THE ECONOMY? THROUGH CORPORATIONS,
CONSUMERS, AND THE WORLD ECONOMY?

Corporate impact:
à projects are mul9-year so long-term borrowing to match the project dura9on.
à lenders to companies face same risks as lenders to gov BUT in addi9on: risk of the
company going bust (companies are less creditworthy than governments) è corporate
bonds have higher yields = the spread = measures how much more a business pays to borrow
money than the government does.
à bps = basis points

What happens when the government yield

curve moves?
à spread remains rela9vely constant.
à Government yield curves underline the cost
of borrowing for companies è oCen, cost of
borrowing for companies will change when
cost of borrowing for the gov changes.

à Corporate spread significantly widen during the 2008 market crash because corporate
bond issuers go bankrupt more frequently than governments, as they do not have a tax base
to fall back on in hard 9mes.
à when a company’s corporate spread 9ghtens it means that the company’s bonds are
outperforming the benchmark yield.
Commenté [DA27]: Unlike corpora:ons, governments have
the ability to raise revenue through taxa:on and have access
to a wide range of financial resources, including the ability to
print currency. They have a tax base and can use taxa:on to
generate the necessary funds to meet their debt obliga:ons.

Consumer impact:
à 30-year fixed rate mortgage is priced off 10-year gov bond yields è consistent spread
between the two, gov bond yields influence the level of ac9vity in the housing market.
Because riskier to lend money to consumer than to the government, so need to compensate.

Global impact:
à bond yields of advanced economies are strongly correlated (free market, global economic
interconnectedness, policy coordina9on).

CONCLUSION:
MOVEMENTS IN THE YIELD CURVE

The yield curve in moKon:

à US government bond yields and prices are driven by short-term interest rates and
infla9on. So, to make profitable trades, need to correctly predict the Fed’s next move and
infla9on.

Movement in leV-hand end of yield curve:

How does the Central Bank affect the le8-hand end?
à is simply the Federal Funds Target rate, i.e the interest rate set by the Federal Reserve
(FED). It represents the rate at which depositary ins9tu9ons lend reserves to each other to
meet their reserve requirements.

Movement in the right-hand end of yield curve:

How does the Central Bank affect the right-hand end?
à Strongly influenced by infla9on expecta9ons but also interest rates, GDP growth
es9mates, demographics, demand for borrowing, supply of lending.

PredicKng yield curve movements:

à ILBE on Bloomberg helps you predict the right-hand end.
à Bond traders sell bond in an9cipa9on of infla9on rises and rate hikes, buy bonds in
an9cipa9on of falls in infla9on and rate cuts.

Steep yield curve:

à boom an9cipa9on è infla9on an9cipa9on è rise in short-term interest rates
an9cipa9on.
à sign of an accelera9ng economy because low interest rates set by Central Banks but
expecta9on of infla9on and rise in interest rates è yields very high. Commenté [ADD28]: demand for higher yields to
compensate the erosion of purchasing power of the fixed
interest payments and principal repayment.

Flat yield curve:

à2006 high interest rates in the US to cool down the housing market and control infla9on
è so many investors were posi9oning themselves for the aCermath when the economy
would slow, and the Fed would cut rates è flat yield curve because prices decreased and
higher yields.
Inverted yield curve:
à 2006, new rate hike by Bernanke è bond investors were then beLng that he would cut
rates so bought medium and long-term bonds that would benefit from rate cut è sold short-
term bonds è inverted the yield curve by the end of 2006.
à 2007 è interest rates from 5.25% to 0.25%, investors were spot on è credit crunch.

The yield curve as an economic indicator:

à term premium = difference between 10-year gov bond yields and 3-month gov bond
yields è when nega9ve, the yield curve is inverted.
à six out of 7 were right, inversion in the yield curve is an excellent indicator of incoming
major economic crisis.

CuSng interest rates between September and October:

CONCLUSION:

QUESTIONS INTERVIEW

Quick presentaKon?
à Hello, my name is Denisa, and I’m a third-year student at emlyon business school in
France.
To tell you a linle about my background, I come from a family of Romanian immigrants who
arrived in France in 2002. My parents didn't go to school, but I wanted to get out of the
economic and social situa9on we were in, so I worked hard to get into the best schools I
could. Thanks to a lot of hard work and research, because I didn’t know anything about the
French school system, I was able to leave my school in a Priority Educa9on Zone and enter
the Lycée Louis-le-Grand, then a preparatory class and finally emlyon. I've always had to
build my future on my own, since my parents couldn't give me any advice or help, and that's
what made me very independent.

Why CiK?
à global reputa9on, commitment to innova9on (20% of its revenue dedicated to innova9on
– Ci9 Token Services) and inclusive work culture:
à commitment in promo9ng women: Jane Fraser was the first woman to head a major U.S
bank (2020) + suppor9ng global movement for girls’ educa9on (Girl Rising + movie) + looking
to hire more and more women, have also gender parity in teams (talked with employees that
told me).
à ideal pla|orm for professional growth + real responsibili9es for interns.

Why DCM FIG (Debt Capital Market – Financial InsKtuKons Group)?

à DCM talked to Clement Rollet, last intern, explained what he did on a daily basis and how
the DCM department works.
à Intern has real responsibili9es, and can be proac9ve, is considered as a real employee not
just as the one who helps, and nobody cares about. In this sense, the internship is very
instruc9ve.
à Opportunity to develop specialized exper9se in working with financial ins9tu9ons (banks,
insurers, asset managers). Allows me to put into prac9ce what I’ve learned and especially
deepen my knowledge. This is the real reason why. I really want to learn with you, and with
the Paris team.
à financial ins9tu9ons sector: very dynamic and cri9cal role in the global economy
(facilita9ng economic growth, managing risks, driving innova9on).
à good alterna9ve between M&A and sales.

Why passion for finance (markets)?

à interes9ng
à s9mula9ng è wanted a job where I could constantly learn and never get bored, always
be busy and need to work hard. I need s9mula9on, and this is the main reason I loved my
years in preparatory class.
à requires analy9cal skills and strategic thinking.
à more dynamic than corporate finance
à good client rela9onship

What is a stock opIon?

A stock op9on is a financial contract that gives the holder the right, but not the obliga9on, to
buy or sell a specific number of shares of a company's stock at a predetermined price, known
as the "strike price," within a specified period or on a specific date.
Two types of stock op9ons:
• Call op9ons: give the holder the right to buy a specified number of shares of a stock
at the strike price before or on a specific expira9on date. Used by investors who
an9cipate that the stock’s price will rise, allowing them to purchase shares at a lower
predetermined price.
• Put op9ons: give the holder the right to sell a specified number of shares of a stock at
the strike price before or on a specific expira9on date. Used by investors who expect
the stock’s price to decline, allowing them to sell shares at a higher predetermined
price.

Who is the Chairman of FED, of ECB, of Bank of England? Their interest rates?
à FED, Jerome Powell since 2018: announced last week maintaining interest rates between
5.25% and 5.5%. Yields on Treasury bills are above 5% too.
à Israël / Hamas war è could possibly lead to a hike on oil prices.

à BCE, Chris9ne Lagarde since 2019: agreed to stop rising interest rates for the first 9me in
15 months, steady interest rate at 4%.
à Markets expect central banks to start cuLng interest rates next year.

à Bank of England, Andrew Bailey (Governor of the BoE since 2020): 5.25% steady.

Interest rates of gov bond in France, US, Germany (most liquid in Europe), UK?

How do interest rates affect bond prices?

à interest rates and bond prices are inversely related è when interest rates rise, bond
prices tend to fall.
à a bond’s yield is the annual interest rate it pays, expressed as a percentage of the bond’s
face value. To calculate a yield:
 • Coupon in $ / market price. For example, if a bond with a $1,000 face value and a 5%
coupon is trading in the market for $1,100, the current yield would be 4.55% ($50 /
$1,100).
• Here the coupon rate is 5% and the coupon is $50.
à When market interest rates rise, newly issued bonds offer higher yields to remain
compe99ve.
à ???

- [ ] Actualité poli9que et monétaire

- [ ] Comment tu prices une nouvelle obliga9on / nouveau bond —> quand émeneur émet
dene souvent, tu regardes la courbe d’emission du passé, à quel niveau un bond traite +
rajouter une prime de nouvelle emission pour aLrer les inves9sseurs
- [ ] choses à savoir sur la poli9que monétaire

- [ ] Niveau régula9on : Bâle 3 —> ra9os d’endenement, de fonds propres à respecter,

pourquoi ils existent, comment etc
C’est une raison
- [ ] Les différents instruments:
De la plus junior à la moins senior
- dene la plus sure : cover bond (AAA) : obliga9ons garan9es par les prets que les banques
font
- Dene senior préférée et non préférée
- Dene subordonnée : dene 9er 2 et dene AT1 —> subordonnées car si banque en difficulté
denes peuvent être conver9es en ac9on ou mises à 0

Puis on calcule en fonc9on des ac9fs et des ra9os

Sites professionnels
Site de la BCE : dene financière

- [ ] Se renseigner sur credit suisse et UBS car touche à dene AT1 —> financial 9mes en detail
explique

Secteur public
- [ ] Les émeneurs
- [ ] Quel type d’instrument

- [ ] Se renseigner sur Run-in Lyon / sur randonnée / via ferrata

- [ ] Taux français, américains, allemands, 2 ans et 10 ans
- [ ] Connaître quelques caractéris9ques sur chaque
- [ ] Qu’est-ce qui fait que la montée des taux affecte les yields et prix des bonds.

As CHATGPT the basics to know about Equity: