In the summer of 1991, the first issue of The Journal of Fixed Income was published. More than 900 articles have been published in the journal since then, educating market participants with an understanding of the many complex fixed-income products developed over the 30 years that followed as well as introducing analytical concepts for fixed-income portfolio management that are used today by practitioners and are included in the analytics packages provided by third-party vendors. In this article, the author describes 72 articles that demonstrate the importance of the journal in advancing fixed-income analytics as well as in providing portfolio managers with insights to enhance portfolio returns by demonstrating the drivers of returns and where individuals can capitalize on opportunities in the market.
{"title":"Contributions of The Journal of Fixed Income to Fixed-Income Analytics","authors":"Frank J. Fabozzi","doi":"10.3905/jfi.2022.1.141","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.141","url":null,"abstract":"In the summer of 1991, the first issue of The Journal of Fixed Income was published. More than 900 articles have been published in the journal since then, educating market participants with an understanding of the many complex fixed-income products developed over the 30 years that followed as well as introducing analytical concepts for fixed-income portfolio management that are used today by practitioners and are included in the analytics packages provided by third-party vendors. In this article, the author describes 72 articles that demonstrate the importance of the journal in advancing fixed-income analytics as well as in providing portfolio managers with insights to enhance portfolio returns by demonstrating the drivers of returns and where individuals can capitalize on opportunities in the market.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"24 1","pages":"7 - 27"},"PeriodicalIF":0.0,"publicationDate":"2022-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91098409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the past 31 years, The Journal of Fixed Income has published articles that were primers about the structure and risk characteristics for the growing number of complex mortgage-related securities introduced in the market and analytical tools for evaluating their value and risk characteristics. In addition, articles in the journal have influenced important public policy decisions regarding the housing finance market. In this article, the author reviews 74 articles published in The Journal of Fixed Income that cover topics of critical importance to participants in the mortgage-backed securities market.
{"title":"Contributions of The Journal of Fixed Income to MBS Analysis","authors":"Frank J. Fabozzi","doi":"10.3905/jfi.2022.1.140","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.140","url":null,"abstract":"Over the past 31 years, The Journal of Fixed Income has published articles that were primers about the structure and risk characteristics for the growing number of complex mortgage-related securities introduced in the market and analytical tools for evaluating their value and risk characteristics. In addition, articles in the journal have influenced important public policy decisions regarding the housing finance market. In this article, the author reviews 74 articles published in The Journal of Fixed Income that cover topics of critical importance to participants in the mortgage-backed securities market.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"32 1","pages":"28 - 52"},"PeriodicalIF":0.0,"publicationDate":"2022-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43056133","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Investors in the mortgage-backed securities market have long tiered pools based on the servicer concentration in the pool. The tiering is largely due to observed prepayment differences among servicer, servicer type (bank versus non-bank), and origination channel (retail, correspondent, or broker). We examine the influence of the servicer on prepayment rates and differentiate between bank and non-bank servicers. Further, the origination channel also influences mortgage prepayment rates.
{"title":"Servicer Influence on Mortgage Prepayments","authors":"Glenn M. Schultz, Frank J. Fabozzi","doi":"10.3905/jfi.2022.1.139","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.139","url":null,"abstract":"Investors in the mortgage-backed securities market have long tiered pools based on the servicer concentration in the pool. The tiering is largely due to observed prepayment differences among servicer, servicer type (bank versus non-bank), and origination channel (retail, correspondent, or broker). We examine the influence of the servicer on prepayment rates and differentiate between bank and non-bank servicers. Further, the origination channel also influences mortgage prepayment rates.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"32 1","pages":"91 - 97"},"PeriodicalIF":0.0,"publicationDate":"2022-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44825249","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article presents an empirical examination of issuers’ motives to issue putable bonds using a comprehensive sample of putable and straight debt issues from 1976 to 2019. We focus on the regular putable bonds that are not tied to specific event risks and are nonconvertible and noncallable. We find that putable bond issues span over the past 4 decades and across industry groups. These bonds are smaller in offer size, are longer in maturity, and have fewer covenants than straight debt. Using Probit and Tobit regressions, we find that firms with greater risk-shifting incentives measured by market-to-book ratio and WW Index are more likely to issue putable bonds. We also find that issuers with a high level of information asymmetry are more likely to issue putables. Our findings suggest the put option can be viewed as an effective contracting term that helps attract bondholder interest and alleviate borrowing costs for issuers. Finally, we consider the simultaneity of the decisions on putable, covenants, and leverage and find further confirmation for the risk-shifting and information asymmetry hypothesis for putable issuances.
{"title":"Putable Bonds, Risk-Shifting Problems, and Information Asymmetry","authors":"T. D. King, Taichun Piao, Cinder Xinde Zhang","doi":"10.3905/jfi.2022.1.135","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.135","url":null,"abstract":"This article presents an empirical examination of issuers’ motives to issue putable bonds using a comprehensive sample of putable and straight debt issues from 1976 to 2019. We focus on the regular putable bonds that are not tied to specific event risks and are nonconvertible and noncallable. We find that putable bond issues span over the past 4 decades and across industry groups. These bonds are smaller in offer size, are longer in maturity, and have fewer covenants than straight debt. Using Probit and Tobit regressions, we find that firms with greater risk-shifting incentives measured by market-to-book ratio and WW Index are more likely to issue putable bonds. We also find that issuers with a high level of information asymmetry are more likely to issue putables. Our findings suggest the put option can be viewed as an effective contracting term that helps attract bondholder interest and alleviate borrowing costs for issuers. Finally, we consider the simultaneity of the decisions on putable, covenants, and leverage and find further confirmation for the risk-shifting and information asymmetry hypothesis for putable issuances.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"32 1","pages":"99 - 123"},"PeriodicalIF":0.0,"publicationDate":"2022-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42381192","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article finds that economic policy uncertainty (EPU) is a systematic risk factor priced in the cross-section of corporate bonds. Bonds with high EPU beta have low expected returns, and this negative premium is robust to controlling for conventional risk factors, bond characteristics, and macroeconomic conditions and uncertainty. The effect of policy risk is pervasive, stronger for speculative-grade bonds, and priced in both US and foreign markets. The EPU risk effect is greater for firms that have higher earnings exposure to policy uncertainty, dependence on external financing, and effective tax rates; those with lower pre-tax interest coverage; and those that operate in regulation-intensive industries.
{"title":"Economic Policy Uncertainty and the Cross-Section of Corporate Bond Returns","authors":"Xinyuan Tao, Bo‐Ting Wang, Junbo Wang, Chunchi Wu","doi":"10.3905/jfi.2022.1.134","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.134","url":null,"abstract":"This article finds that economic policy uncertainty (EPU) is a systematic risk factor priced in the cross-section of corporate bonds. Bonds with high EPU beta have low expected returns, and this negative premium is robust to controlling for conventional risk factors, bond characteristics, and macroeconomic conditions and uncertainty. The effect of policy risk is pervasive, stronger for speculative-grade bonds, and priced in both US and foreign markets. The EPU risk effect is greater for firms that have higher earnings exposure to policy uncertainty, dependence on external financing, and effective tax rates; those with lower pre-tax interest coverage; and those that operate in regulation-intensive industries.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"32 1","pages":"6 - 44"},"PeriodicalIF":0.0,"publicationDate":"2022-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47839567","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-31DOI: 10.3905/jfi.2022.31.4.001
Stanley J. Kon
{"title":"Editor’s Letter","authors":"Stanley J. Kon","doi":"10.3905/jfi.2022.31.4.001","DOIUrl":"https://doi.org/10.3905/jfi.2022.31.4.001","url":null,"abstract":"","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"1"},"PeriodicalIF":0.0,"publicationDate":"2022-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48287742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Specified pools are agency mortgage-backed securities whose loan pools have been found to exhibit different (i.e., superior or inferior to) convexity relative to generic to-be-announced pools. In this article, the authors describe the various sectors of the specified pool market, the convexity profile of the sectors of the specified pool market, and the monitoring of specified pool prepayment differentials.
{"title":"Primer on Agency Mortgage-Backed Securities Specified Pools and Their Convexity Profiles","authors":"Glenn M. Schultz, F. Fabozzi","doi":"10.3905/jfi.2022.1.133","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.133","url":null,"abstract":"Specified pools are agency mortgage-backed securities whose loan pools have been found to exhibit different (i.e., superior or inferior to) convexity relative to generic to-be-announced pools. In this article, the authors describe the various sectors of the specified pool market, the convexity profile of the sectors of the specified pool market, and the monitoring of specified pool prepayment differentials.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"33 - 49"},"PeriodicalIF":0.0,"publicationDate":"2022-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44558165","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Musa Amadeus, R. Bhargava, T. Graf, M. Guidi, Michael Metcalfe, Gideon Ozik, Ronnie Sadka
This article examines the ramifications of central bank monetary tones on future changes in yields. The authors observe that monetary tones in media coverage of central bank policies contain predictive information pertaining to future weekly fluctuations in yields. Those relationships are more pronounced between monetary policy meetings suggesting that investors may use monetary tones to ameliorate temporal discontinuities in information flow from central banks between monetary policy meetings. Bottom-to-top decile fluctuations in Federal Reserve monetary tones precipitate a roughly 5.58 basis point 1-week increase in Treasury 10-year yields. A strategy designed to capture those weekly fluctuations earns roughly 0.56% weekly or roughly 29% in annualized terms during the period January 2015 through February 2021. The authors observe that those relationships manifest across various prediction horizons and yield maturities and are robust to controlling for autocorrelation structures in yields and spreads. They also find that those relationships are present within distinct geographic regions.
{"title":"Central Bank Monetary Tones and Yields","authors":"Musa Amadeus, R. Bhargava, T. Graf, M. Guidi, Michael Metcalfe, Gideon Ozik, Ronnie Sadka","doi":"10.3905/jfi.2022.1.132","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.132","url":null,"abstract":"This article examines the ramifications of central bank monetary tones on future changes in yields. The authors observe that monetary tones in media coverage of central bank policies contain predictive information pertaining to future weekly fluctuations in yields. Those relationships are more pronounced between monetary policy meetings suggesting that investors may use monetary tones to ameliorate temporal discontinuities in information flow from central banks between monetary policy meetings. Bottom-to-top decile fluctuations in Federal Reserve monetary tones precipitate a roughly 5.58 basis point 1-week increase in Treasury 10-year yields. A strategy designed to capture those weekly fluctuations earns roughly 0.56% weekly or roughly 29% in annualized terms during the period January 2015 through February 2021. The authors observe that those relationships manifest across various prediction horizons and yield maturities and are robust to controlling for autocorrelation structures in yields and spreads. They also find that those relationships are present within distinct geographic regions.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"5 - 19"},"PeriodicalIF":0.0,"publicationDate":"2022-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45466201","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Inconsistent application of the SEC Yield formula to calculate TIPS bond mutual fund and TIPS bond ETF yields can lead to misleading yield reporting. This article recommends two adjustments to make the SEC Yield calculation more suitable for comparing TIPS bond fund performance. First, apply the break-even inflation rate to re-express each TIPS bond’s real yield as an equivalent nominal yield. Second, use the nominal yield to maturity to calculate 30 days’ interest income, but do not add the monthly inflation adjustment to the TIPS bond’s principal amount.
{"title":"Seeking Improved Yield: How to Make SEC Yield More Suitable for TIPS","authors":"J. Finnerty","doi":"10.3905/jfi.2022.1.131","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.131","url":null,"abstract":"Inconsistent application of the SEC Yield formula to calculate TIPS bond mutual fund and TIPS bond ETF yields can lead to misleading yield reporting. This article recommends two adjustments to make the SEC Yield calculation more suitable for comparing TIPS bond fund performance. First, apply the break-even inflation rate to re-express each TIPS bond’s real yield as an equivalent nominal yield. Second, use the nominal yield to maturity to calculate 30 days’ interest income, but do not add the monthly inflation adjustment to the TIPS bond’s principal amount.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"100 - 111"},"PeriodicalIF":0.0,"publicationDate":"2022-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44108289","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article presents a simple reformulation of the restricted Cieslak and Povala return-predicting factor, which retains by construction exactly the same (impressive) explanatory power as the original but affords an alternative and attractive interpretation. What determines the future returns, the new formulation shows, is a function of the distance of the yield-curve level and the slope not from a fixed reference level, but from a conditional one, determined by a function of the long-term inflation. The decomposition also allows a clear attribution of the predictive power of the Cieslak and Povala factor between the conditional level and slope deviations. The authors present new empirical evidence to show that, consistent with the interpretation they present, inflation surprises are powerful out-of-sample predictors of Treasury excess returns.
{"title":"Why Does the Cieslak–Povala Model Predict Treasury Returns? A Reinterpretation","authors":"R. Rebonato, Takumi Hatano","doi":"10.3905/jfi.2022.1.130","DOIUrl":"https://doi.org/10.3905/jfi.2022.1.130","url":null,"abstract":"This article presents a simple reformulation of the restricted Cieslak and Povala return-predicting factor, which retains by construction exactly the same (impressive) explanatory power as the original but affords an alternative and attractive interpretation. What determines the future returns, the new formulation shows, is a function of the distance of the yield-curve level and the slope not from a fixed reference level, but from a conditional one, determined by a function of the long-term inflation. The decomposition also allows a clear attribution of the predictive power of the Cieslak and Povala factor between the conditional level and slope deviations. The authors present new empirical evidence to show that, consistent with the interpretation they present, inflation surprises are powerful out-of-sample predictors of Treasury excess returns.","PeriodicalId":53711,"journal":{"name":"Journal of Fixed Income","volume":"31 1","pages":"20 - 32"},"PeriodicalIF":0.0,"publicationDate":"2022-02-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47308882","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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