Top 5 Reasons to pursue a career in FIXED INCOME

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Top 5 Reasonsto pursue a career inFIXED INCOME
Investment Association Ross School of
Business University of Michigan

• And how to get prepared.

Marcelo Miranda October 2005
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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
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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)

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3 Spectrum of Products

• Not just Corporate and Treasury bonds.
• A (simplistic) view of the Fixed Income umbrella

Money Markets Debt Capital Markets Governments/Age
ncies 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.

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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.

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5 Nothing is Fixed

• Plenty of volatility to make it exciting.
• Argentina, General Motors etc.

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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, Liars Poker
• Websites
• Bond Market Association http//www.bondmarkets.co
  m
• FOMC http//www.federalreserve.gov/fomc/
• Default Risk http//www.defaultrisk.com/
• Ross School of Business Investment Association
  (Daniel Oh pres.)!!!

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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.