Applied Essentials - The UK Gilt Edged Market Handbook

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Will the UK keep or lose its AAA credit rating? Will gilt buyers and investors continue to absorb issuance or will they require much higher yields? How will these factors affect the value of the pound, the cost of fixed rate mortgages and public finances? These questions are being widely debated and no doubt the answers will become clear in due course. However, one thing is for sure; many people who were blissfully unaware of the workings of the gilt market will now have to familiarise themselves with it.

'Applied Essentials - The UK Gilt Edged Market Handbook' provides a single post credit crunch source of reference on the gilt market. Written in plain English, and including up-to-date information that was not previously available, this book is accessible and practical.

Whether you are a seasoned professional or new to the gilt markets, this is a must-have guide.

Author's Site

Capital-Consultancy and Training Company Limited www.capital-consultancy.co.uk

Contents

Chapter 1. An overview of the Gilt Market
A short history of the Gilt Market
The Modern Gilt Market
Why the market exists
The Chancellor and his role in setting the budget for the UK
The Debt Management Office
The Gilt Edged Market Makers
Investors
Electronic Trading Platforms

Chapter 2. Gilt Market Instruments
Conventional Gilts
Index Linked Gilts
Coupon Strips
Zero Coupon Gilt
Consols and War Loan

Chapter 3. The Issue Process
The Auction Calendar
Auction Press Announcement
The bidding process
The Auction and Allocation Process
Competitive and noncompetitive bids

Chapter 4. Following a Trade in the Market
Quotation conventions
Types of market order
Settlement methods
Buying Gilts in the open market
Coupon calculations
Receipt of coupon
The Gilt maturity process
Selling Gilts before maturity
Following a trade for:
Conventional Gilts
Index Linked Gilts
Coupon Strips
Zero Coupon Strips
When Issued Gilts
War Loan and Consuls
Floating Rate Gilts

Chapter 5. Gilt Market Calculations
Clean Price
Accrued Coupon
Dirty Price
Calculating consideration from price
Current yield and yield to maturity
Calculating yield from price
Calculating price from yield
Calculating coupon amounts on index linked gilts
Calculating principal repayment on index linked gilts

Chapter 6. The Gilt Repo Market
The purpose of the gilt repo market
Types of Repo Tranactions
- Classic Repo
-- Repo and Reverse Repo
-- General Collateral
-- Special Collateral
- Open Repo
- Repo by value
- Sell / Buy back
- Stock lending
Following a trade from:
- Quotation
- Trade
- Cash flows on the effective date
- Substitutions
- Revaluation and margining
- Cash flows on the maturity date
TBMA/ISMA Documentation
Repo Calculations

Chapter 7. Gilt Market Risk
How to measure risk using Modified Duration and Convexity
A description of Duration and Convexity
How to calculate Modified Duration
How to convert Modified Duration to DV01
Using maturity ladders and DV01 to measure interest rate risk
Calculating Gilt hedge ratios
How to calculate Convexity
Reducing convexity risk by using gilt options

Chapter 8. Gilt Futures
What is a Gilt Futures Contract
A brief description of the Gilt Futures Market and LIFFE
Contract Specification
Futures quotation and trading methodology
The relationship between the cash gilt market and gilt futures
- Conversion factors
- The cheapest to deliver Gilt
- The implied repo rate
- Calculating hedge ratios and hedge efficiency
Following a trade
- Opening a trade
- Mark to market and margin calculations
- Closing the trade
- The delivery process
- Calculating the invoice amount

Chapter 9. Gilt Options
A brief description of the properties of a Gilt Options
Option premium calculations
- Time Value
- Intrinsic Value
Option price drivers and the Greeks
- The Gilt Price - Delta and Gamma
- The Movement of time - Theta
- Changes in market implied volatility - Vega
Portfolio Hedging Techniques
- Selling calls for income enhancement
- Buying puts to protect against falling prices
- Collaring Price Risk

Chapter 10. Gilt Trading Strategies
Yield pick-up
Rates increasing and decreasing
Curve flattening
Curve Steepening
Barbells
Trading market volatility using options

Appendix 1. Current Gilts in Issue
Appendix 2. Reference Works and Resource List
Appendix 3. Gilt Indexes

About the author

Robin has been associated with the financial markets since 1971, starting from the humble position of FX Instruction Clerk in the back office of Charterhouse Japhet swapping settlement instructions with other banks for foreign exchange trades. Since then he has worked for a number of banks, both large, Royal Bank of Canada and small, Henry Ansbacher. In London, in the positions of proprietary trader and sales trader, and overseas at Riyad Bank in Riyadh where he was head of the High Net Worth Individual desk advising and executing trades in the fixed income and international equity markets. Robin continues to be active in the financial markets, trading amongst other things equities and equity options, foreign exchange and holding gilts in his pension fund, which he manages. For the last twenty years Robin has had his own company involved in financial market training. He has trained extensively in Europe, the United States and the Far and Middle East on subjects as diverse as fixed income, asset backed securities, equities, foreign exchange and risk management. For the last 18-months Robin has had the pleasure of holding the post of Chief Examiner for the Bonds and Fixed Interest Examination for the Chartered Institute for Securities and Investments. He also holds the ACI Diploma (Dist).

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