An update to fixed income markets, courtesy Vipul Singh Chouhan

Vipul Singh Chouhan, who I had the privilege of teaching about six years ago or so, has forgotten more about fixed income securities than I’ll ever know. Immediately after posting the previous post, I messaged asking if he would like to add to the list.

What follows are his recommendations, lightly edited for the sake of clarity. Thanks a ton, Vipul!

  1. Factsheets of all the Mutual Funds released on a monthly basis. I’ve linked to the Morningstar website, but I believe this is available through multiple sources. Here’s an actual factsheet, pulled out completely at random.
  2. Vipul recommends that you keep a close eye on the commentary of the Debt CIO on the current situation of the fixed income markets. See this, for one example.
    Specifically, Vipul recommends you try and get answers to the following questions:

    1. What are they holding?
    2. In what proportion?
    3. In what maturity bucket?
    4. What is the credit rating?
  3.  It doesn’t end there! After getting to know about the credit rating of a structure, read it.  For example, let’s say a particular CMBS (Commercial Mortgage Backed Security) is rated AA+ by India Ratings, go to the website and read the entire two page rationale. Then go and read rationales for similar CMBS structures – peer review, if you will. Poke around! Compare and contrast! Find faults!
    This next paragraph is quoted verbatim:

    “Pester someone like Ashish sir and tell him “Sir in my view this should be AA and not AA+, pls correct me if I’m wrong”. Take feedback from him and improve your analysis on a continuous basis. “

    Well, please don’t take up Vipul on this suggestion quite literally, but don’t ignore the larger point, which is that you must find for yourself a mentor in the subject area you are trying to learn more about, and bug that mentor about learning more. I assure you, this is a vastly under-rated, and under-exploited skill. By me as well, to be clear.

  4. Learn to look for patterns, and learn to connect the dots. This is easier said than done, and you need to bury your nose in these reports for weeks on end, but eventually, you’ll “get a feel” for what you’re looking for. Here’s an example from Vipul:

    In the fact sheet, find patterns, let’s say investment grade AUM has increased in the last few months, while the credit risk AUM has nose dived. Explore the internet for reasons.

    Maybe that didn’t make sense to you. Well, look up the terms and phrases, try to make sense of them, and then ask your mentor the question. The question should never be, “What is XYZ?”. It should be, “I didn’t understand this term, so I looked it up, and here is what I specifically don’t understand about XYZ.” Asking the right question is a great skill!

  5. Again, a straight quote, unedited:

    Among the various structures, which MFs buy what: LAS, CMBS, Corporate guarantee, Letter of Comfort, DSRA guarantee. Understand each in detail. Which structure is preferred by which issuer and for what reasons. Pros and cons of each structure.

  6. With regard to that last point, if you want to really be a part of the industry,  learn each of those terms, once again with a weighted average of research online and follow-up questions with your mentor. The internet will tell you what the terms mean, and your mentor will tell you why it matters. Both are important, and in that sequence.
  7. Vipul recommends that you browse RBI site regularly. Specifically, whether you understand the reports or not, look out for data on the following:
    1. Outstanding G-Secs
    2. Primary auctions of CMBs (s is small, not to be confused with the CMBS mentioned above)
    3. SDLs,
    4. T-Bills. 
  8. Government Securities Market for Beginners: A Primer, which I myself hadn’t read until now (Thanks Vipul!)
  9. And finally, FIMMDA for corporate bond spreads and base yield curve.

Akash (and anybody else interested in this topic), this should keep you busy for days on end. My thanks to Vipul for taking the time to respond so quickly, and for sharing a most excellent set of links 🙂