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Top 5 Reasons to pursue a career in FIXED INCOME

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.

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Top 5 Reasons to pursue a career in FIXED INCOME

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  1. Investment Association Ross School of Business University of Michigan Top 5 Reasonsto pursue a career inFIXED INCOME And how to get prepared. Marcelo Miranda October 2005

  2. # 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 • Derivatives: • Equity: $1.8 trillion • Fixed Income: $77 trillion!!! Figures are from 2004

  3. # 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) • Size • Market Structure (most of the trades are OTC, lower impact from electronic trading, decimalization, etc.) • Momentum (low interest rates, more issuance)

  4. # 3 – Spectrum of Products • Not just Corporate and Treasury bonds. • A (simplistic) view of the Fixed Income umbrella: Money Markets Debt Capital Markets Governments/Agencies High Grade Credit High Yield Interest Rate Swaps and Options Credit Derivatives Asset Securitization Emerging Markets Convertible Bonds • Each desk requires a different skills set. • Quantitative skills are highly valued.

  5. # 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.

  6. # 5 – Nothing is Fixed • Plenty of volatility to make it exciting. • Argentina, General Motors etc.

  7. 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.)!!!

  8. 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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