A day in life of Fixed Income Analyst??!!

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Damil4real

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And I thought I was going to read a day in life of a Fixed Income Analyst. LMAO!
 
I'm not trying to bash FI, but I'd like to know more about what the FI guys like about doing FI and how it is different from Equities. I gather there are more macro level decisions being made in FI because the micro-level information tends to affect the equity payment stream more directly, but I don't know much more than that.
 
Big Nodge Wrote:
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>In the real world equity and
> fixed income analysts talk often, both sides focus
> on different things and it's always good to know
> what other guys are thinking about, even if your
> interests are not totally aligned.

Good point. I regularly use equity research reports as the analyst coverage is great on keeping up on developments in real time and adding color to what I see in the bond and CDS markets.
 
Think about MBS, the biggest sector in the world.

When looking at a 7% coupon MBS for example, one must think about:

*The likelihood of a borrower refinancing based on:
- where they live
- what there fico score is
- what gross wac (weighted avg coupon) they're paying
- dti (debt as a % of income)
- their ltv (loan value as a ratio to house value)
- what type of property they're living in
- what type of mortgage they took out
- etc...

*How a 7% coupon mortgage would fit into the portfolio vs a 6% coupon:
- a 6% bond would offer a higher spread/yield because it's at the money. this means that any deviation from your estimated CPR will affect this bond more negatively than any other coupon
- a 7% bond on the other hand has more of a premium to it and thus you're going to suffer more of a hit when a borrower refinances


These are two of the most basic concepts of MBS; and this is for very generic/vanilla mortgages. Compound that for subprime and compound it even more for CDOs. A CDO slice may have billions of dollars in notional behind it that needs to be analyzed. That's hundreds of thousands of mortgages that could theoretically all go through modeling.

Again we're talking about only one bond. Maybe a 5 or 50mm piece.

Concurrent with the purchase decision is the necessity to hedge your position. What instrument do you hedge with? Straight treasury futures? Caps, floors, corridors? Swaps? Agency futures? All of those may hedge out interest rate risk; but what about basis risk?

This is the most basic product from 10 years ago. The MBS market has advanced 100 fold since then...
 
I wouldn't deny that either side is extremely complicated. But just to stir the pot...I have to look at stocks like JRT - where I have to understand everything you just mentioned, plus everything you'd like at in any stock. Whoa.
 
there is also a ton of distressed work in fixed income which is really fun...valuing stuff at 30-40 cents on the dollar with bankruptcy scenarios, recovery, etc. tons of legals, covenants, etc.

and as one poster pointed out---the hedging side is very complex and interesting.

i too talk to equity research analysts on a regular basis...you need them for high yield analysis.
 
bchadwick Wrote:
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> I'm not trying to bash FI, but I'd like to know
> more about what the FI guys like about doing FI
> and how it is different from Equities. I gather
> there are more macro level decisions being made in
> FI because the micro-level information tends to
> affect the equity payment stream more directly,
> but I don't know much more than that.


Fixed income is a huge asset class, so there are lots of differnet answers. I work in credit research, so I stay very focused on individual issuers. What I like about the fixed income bent on analyzing companies is that, in my opinion, you don't have to spend as much time worrying about forecasting each line item and making calls on whether quarterly EPS will beat or miss by a few pennies. That doesn't really move the needle as much for an investment grade credit, so you can spend more time thinking at a high level about the fundamental business trends the company is facing. Less time on quarterly minutia, more time thinking about the big picture of where the company has been and where it is going.

Of course, the downside is that you are the red-headed stepchild of the capital structure (in terms of management focus), so you have to constantly ask yourself "What's to stop these guys from levering up to buy back stock, hike the dividend, or go private, completely fvcking me in the process".
 
KRochelli Wrote:
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> there is also a ton of distressed work in fixed
> income which is really fun...valuing stuff at
> 30-40 cents on the dollar with bankruptcy
> scenarios, recovery, etc. tons of legals,
> covenants, etc.
>
> and as one poster pointed out---the hedging side
> is very complex and interesting.
>
> i too talk to equity research analysts on a
> regular basis...you need them for high yield
> analysis.

yeah, distressed debt must be really cool work, i dont see how anybody could think that was boring.
 
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