June 2013

In this Excel Library video, we take a limited amount of bond yield information, and then extrapolate and interpolate from this a good-fitting yield curve which covers all the ‘potential’ rates in-between.

We do this using the Nelson-Siegel-Svensson method, via the Excel data tool, Solver, and minimise residual error squares to create a believable yield curve, despite a lack of complete information.

The main Nelson-Siegel-Svensson block of code used in this video can be copied from the section below:

=(Beta1)+
(Beta2*((1-EXP(-A2/Lambda1))/(A2/Lambda1)))+
(Beta3*((((1-EXP(-A2/Lambda1))/(A2/Lambda1)))-
(EXP(-A2/Lambda1))))+
(Beta4*((((1-EXP(-A2/Lambda2))/(A2/Lambda2)))-
(EXP(-A2/Lambda2))))

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In today’s lecture, we examine the ‘special’ yield curve known as the ‘riskless’ yield curve and how we define it and its terms.

Once we have this special yield curve defined, we then talk about credit spreads, which are essentially the difference in yields between bonds of the same maturity, particularly as compared to the riskless yield curve.

The full YouTube playlist of Securities Investment 101 lecture videos can be found by clicking here.

Please read our disclaimer.

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Zero Hedge: China Interbank Market Freezes As Overnight Repo Explodes To 25%

June 20, 2013

While our Securities Investment 101 series lies within the realm of the yield curve, I thought it interesting that there appears to be a Black Swan event in China, which looks a lot like the Lehnman Brothers credit crunch: China Interbank Market Freezes As Overnight Repo Explodes To 25% Very interesting.

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The Inverted Yield Curve, Lecture 016, Securities Investment 101

June 19, 2013

In this lecture we describe the inverted yield curve and how it differs from the normal yield curve. Before we get to that, we explain the strategy of ‘riding the yield curve’ and then why the inverted yield curve is such a dangerous thing when riding the yield curve. We explain why the inverted yield […]

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The Yield Curve, Lecture 015, Securities Investment 101

June 17, 2013

In this lecture, we introduce the yield curve, which lies at the base of most cashflow trading. We explain liquidity preference theory, which determines the typical ‘standard’ shape of the yield curve, and how risk and reward, measured by credit risk and opportunity risk, create the standard yield curve. It must be noted, however, that […]

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John Embry: ‘everyone should look at Zero Hedge, Sinclair and KWN’

June 14, 2013

On behalf of GoldMoney, MithrilMoney lecturer Andy Duncan spoke recently to John Embry, the Chief Investment Strategist at Sprott Asset Management: Episode 131: GoldMoney’s Andy Duncan talks to John Embry, Chief Investment Strategist at Sprott Asset Management, about the “Great Gold Takedown”, the road to hyperinflation, and the Orwellian nature of government economic information. Along […]

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Calculating Yield To Maturity from a Bond Price, Lecture 014, Securities Investment 101

June 14, 2013

We examine the theory behind how to calculate a required interest rate yield to maturity from a given bond price, then use three different methods in Excel to achieve the calculation. The methods used in Excel are the use of a scroller tied to an interest rate field, the built-in RATE() function, and the GoalSeek […]

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Pricing a Bond with Yield To Maturity, Lecture 013, Securities Investment 101

June 14, 2013

In this lecture, we price the same standard bond given three different ratings agency ratings, which has given us three different required overall yields to get from the bond, given the changing levels of risk. After explaining the theory of present valuing the different fixed cashflows, we then use an Excel spreadsheet to calculate the […]

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Introducing Yield To Maturity, Lecture 012, Securities Investment 101

June 11, 2013

In this introductory lecture, we explain the conceptual framework behind ‘Yield To Maturity’ and why it is conceptually different from ‘Flat Yield’. In the next two lectures, we will further explore the ideas put forward in this lecture, and both price a bond, given a yield to maturity input, and calculate a yield to maturity, […]

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The Flat Yield of a Bond, Lecture 011, Securities Investment 101

June 10, 2013

In this lecture we examine the simplest bond yield measurement, the ‘Flat Yield’, which is a measure of the periodic income of a bond divided by its initial price. The long-term redemption and capital return values of a bond are irrelevant when considering the flat yield of a bond, which is also known as the […]

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