Inside the Yield Book: The Classic That Created the Science of Bond Analysis

Overview

First published in 1972, and then updated in 2004,Inside the Yield Book is the widely-read classic volume thatled to the modern science of bond analytics.

With the global nature of today's investment management processand the increasing complexity of financial instruments, we may seemfar removed from the bond markets that authors Martin Leibowitz andSidney Homer first wrote about over forty years ago, but theability of this new Third Edition to explain complexrelationships in ...

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Overview

First published in 1972, and then updated in 2004,Inside the Yield Book is the widely-read classic volume thatled to the modern science of bond analytics.

With the global nature of today's investment management processand the increasing complexity of financial instruments, we may seemfar removed from the bond markets that authors Martin Leibowitz andSidney Homer first wrote about over forty years ago, but theability of this new Third Edition to explain complexrelationships in the debt markets in a logical and often intuitiveway remains unchanged.

Divided into three comprehensive parts, this new edition isfilled with what many would consider some of the best informationregarding bonds you'll ever find. It contains the complete originaledition of Leibowitz and Homer's classic, which basically createdthe science of bond analysis through clear explanations of bondportfolio management and the math behind bond yields and prices. Italso includes the 2004 updates to the classic, which developed ahorizon-based approach to present-value and showed how theseconcepts could be generalized beyond bonds to become useful in theanalysis of virtually any investment opportunity, includingequities.

While the earlier editions of this reliable guide focused on asingle bond that was continuously held either to maturity or tosome specified horizon, many bond investments take the form ofportfolios composed of multiple bond holdings and a continuallychanging bond composition. A completely new part of this ThirdEdition contains material coauthored by Martin Leibowitz,Anthony Bova, and Stanley Kogelman that reflects this reality. Itprovides valuable insights into the often-surprising returnbehavior exhibited by Duration Targeting (DT) portfolios—themost common form of bond management—over multi-year horizons.Engaging and informative, this new part addresses some practicalconcerns in this arena as it: develops a trendline-based zerocoupon bond model of Duration Targeting; explores the relationshipbetween yield volatility and return volatility; moves beyond theoryand simulated returns to the recorded returns of actual DurationTargeted portfolios; analyzes the so-called "laddered portfolios"that commonly are used by individual investors; and much more.

Whether you're an institutional or individual investor, trader,or analyst, if you're looking to enhance your bond analysis skills,this authoritative work covers essential concepts and containsillustrative examples that will allow you to excel in today'schallenging bond markets.

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Editorial Reviews

From the Publisher
“The third edition of Inside the Yield Bookbuilds on the previous editions with valuable insights intoduration targeting. The authors convey their mathematically elegantfindings with the same clarity and accessibility that characterizedthe writing of Leibowitz and Homer more than 40 years ago, beforeabstruse formulas began to permeate fixed-incomeanalysis.” 
CFA Institute Book Review
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Product Details

  • ISBN-13: 9781118390139
  • Publisher: Wiley
  • Publication date: 4/29/2013
  • Series: Bloomberg Financial Series, #607
  • Edition number: 3
  • Pages: 356
  • Sales rank: 479,889
  • Product dimensions: 6.00 (w) x 9.10 (h) x 1.20 (d)

Meet the Author

MARTIN L. LEIBOWITZ is a managing director with MorganStanley Research Department's global strategy team. Prior to MorganStanley, he was vice chairman and chief investment officer ofTIAA-CREF. He is the author of numerous books, and over 200articles on various investment analysis topics, ten of which havewon the prestigious Graham and Dodd Award. Leibowitz has receivedthree of the CFA Institute's highest awards: the NicholasMolodovsky Award, the James R. Vertin Award, and the ProfessionalExcellence Award. In 1995, he became the first inductee into theFixed Income Analysts Society's Hall of Fame.

The late SIDNEY HOMER was the founder and general partnerin charge of Salomon Brothers' bond market research department.Best known for his pioneering and analytical studies of bond markethistory and relative values and the economic forces that createbond market trends, he is the author of several books includingA History of Interest Rates, The Bond Buyer's Primer, andThe Price of Money. He was inducted posthumously into theFixed Income Analysts Society's Hall of Fame in 1997.

ANTHONY BOVA is an Executive Director with Morgan StanleyEquity Research's Global Strategy team. He won Best Article in theninth annual Bernstein Fabozzi/Jacobs Levy Awards presented by theJournal of Portfolio Management for his coauthoring of"Gathering Implicit Alphas in a Beta World." In 2008, Mr. Bovacoauthored Modern Portfolio Management (Wiley), whichfocused on active equity strategies. In 2010, he coauthored TheEndowment Model of Investing (Wiley) with Martin Leibowitz andBrett Hammond of TIAA-CREF.

STANLEY KOGELMAN is President of Delft StrategicAdvisors, LLC, and a Principal at Advanced Portfolio Management.Prior to founding Delft Strategic Advisors, he served as a managingdirector at JPMorgan Private Bank and Goldman, Sachs & Co. Heis the author and coauthor of more than sixty articles on financeand received two Graham and Dodd Awards and published two booksjointly with Martin Leibowitz. In an earlier academic career, heheld senior mathematics faculty positions and wrote severalpioneering books on mathematics education, including Mind OverMath and The Only Math Book You'll Ever Need.

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Table of Contents

Preface to the 2013 Edition ix

Acknowledgments xi

PART I: DURATION TARGETING: A NEW LOOK AT BOND PORTFOLIOS(2013 EDITION) 1

Introduction 3

CHAPTER 1 Duration Targeting and the Trendline Model 9

CHAPTER 2 Volatility and Tracking Error 35

CHAPTER 3 Historical Convergence to Yield 51

CHAPTER 4 Barclays Index and Convergence to Yield 63

CHAPTER 5 Laddered Portfolio Convergence to Yield 81

Appendix: Path Return and Volatility 95

References 105

PART II: SOME TOPICS THAT DIDN’T MAKE IT INTO THE 1972EDITION (2004 EDITION) 107

Contents of the 2004 Edition 109

Foreword by Henry Kaufman 111

Preface to the 2004 Edition: A Historical Perspective 113

Technical Appendix to “Some Topics” 157

PART III: INSIDE THE YIELD BOOK (ORIGINAL EDITION)171

Preface to the 1972 Edition 173

Contents of the 1972 Edition 175

List of Tables 179

About the Authors 349

Index 353

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