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Investment Association Ross School of Business University of Michigan Top 5 Reasons to pursue a career in FIXED INCOME And how to get prepared. Marcelo Miranda October 2005 # 1 – Size of the Market • Size of the market can be an indicator of the number of job opportunities. • Equity Market Cap (DJ Wilshire 5000): $10.8 trillion • US Bond Market: $ 21.1 trillion US Bond markets: outstanding by issuer Derivatives: type (trillions) • Equity: $1.8 trillion 1.6 1.9 Municipal 2.5 • Fixed Income: $77 trillion!!! 3.4 Treasury Agencies Mortgage Figures are from 2004 4.3 2.5 Corporate Money Market 5 Asset Backed # 2 – Follow the Money • In the past few years trading revenues from F.I. have been significantly higher than revenues from Equities. (Sell Side but could tell something about the Buy Side) 1. Size 2. Market Structure (most of the trades are OTC, lower impact from electronic trading, decimalization, etc.) 3. Momentum (low interest rates, more issuance) Trading Revenues: Top Securities Firms - EUR bn (1H2005) 9.2 Debt Equity 21.7 # 3 – Spectrum of Products • Not just Corporate and Treasury bonds. • A (simplistic) view of the Fixed Income umbrella: Money Markets Interest Rate Swaps and Options Debt Capital Markets Credit Derivatives Governments/Agencies Asset Securitization High Grade Credit Emerging Markets High Yield Convertible Bonds • Each desk requires a different skills set. • Quantitative skills are highly valued. # 4 – Industry Trends • Hedge funds are becoming an increasing part of the business. (more money flowing into these funds + extremely active) • Most sell side firms are merging their Equity with their Fixed Income divisions in order to better service these hedge funds. • Firms are training new hires to enable them to look at the whole CAPITAL STRUCTURE and not just one side. • Several summer internships are rotational (D + E) and a number of firms hire full time associates as generalists. # 5 – Nothing is Fixed • Plenty of volatility to make it exciting. • Argentina, General Motors etc. How to get prepared Courses: • FIN 609: Fixed Income Securities (Fall B, Winter B) • FIN 580: Options, Futures - FIN 618: Derivatives (Winter B) • FIN 621: Corporate Finance Policy • FIN 612 and FIN 614: International Finance • ACC… Books: Handbook of Fixed Income (Fabozzi), Fiasco, Liar’s Poker Websites: • Bond Market Association: http://www.bondmarkets.com • FOMC: http://www.federalreserve.gov/fomc/ • Default Risk: http://www.defaultrisk.com/ • Ross School of Business Investment Association (Daniel Oh pres.)!!! How to get prepared Interview FAQs: • Basic concepts: Duration, Convexity, Negative Convexity. • Changes in the yield curve (e.g. over the last year). • Fed (FOMC) decisions, meetings. Publications: • Usual suspects: WSJ, Barron's, Markets Magazine (Bloomberg) etc.
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