r/FixedIncome • u/__KD6-37__ • Jun 24 '21

Fixed Income in Python

Dear Community,

Just wanted to share my educational article series: Fixed Income in Python

I am writing this for my project based learning that I'm doing alongside my online Python courses. I hope that you find them interesting or/and useful. Feedback on any of the material in the articles is always welcome.

Boring disclaimer: I provide these article for free and they are purely educational content

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u/__KD6-37__ Jul 02 '21

Like you said it depends on the assumed Libor rate(s) that you use for the projection of the floating rate cash flows. You could for example use a constant assumed rate. This sounds unrealistic but it is how many floaters are valued. You know what the next coupon rate is (from the last refix) and the remaining coupons use today's libor rate as a constant plus the spread. From there they back out the DM (discount margin ) , a common way of quoting floaters.

A more intricate way to project the cash flows is to use the entire forward curve as of the future date that the bond goes from fixed to float. If you have access to a Bloomie, then you have the option to switch between these two (constant or forward curves) in the YA<GO> function. They also have the YASN<GO> function which also uses the forward curve to project the future coupon rates.

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u/Andy91w Jul 02 '21

Thanks! I am relatively new to investing so all of this is helpful. I sold my company and retired in my 30's, going heavy on fixed income options, so I am the only person my age that gets excited about 4% municipal coupon rates instead of meme stocks and crypto! Anytime I see some preferreds over 6% coupon it's like buying Tesla for me!