Synopses & Reviews
First published in 1972,
and then updated in 2004, Inside the Yield Book
is the widely-read classic volume that led to the modern science of bond analytics.
With the global nature of today's investment management process and the increasing complexity of financial instruments, we may seem far removed from the bond markets that authors Martin Leibowitz and Sidney Homer first wrote about over forty years ago, but the ability of this new Third Edition to explain complex relationships in the debt markets in a logical and often intuitive way remains unchanged.
Divided into three comprehensive parts, this new edition is filled with what many would consider some of the best information regarding bonds you'll ever find. It contains the complete original edition of Leibowitz and Homer's classic, which basically created the science of bond analysis through clear explanations of bond portfolio management and the math behind bond yields and prices. It also includes the 2004 updates to the classic, which developed a horizon-based approach to present-value and showed how these concepts could be generalized beyond bonds to become useful in the analysis of virtually any investment opportunity, including equities.
While the earlier editions of this reliable guide focused on a single bond that was continuously held either to maturity or to some specified horizon, many bond investments take the form of portfolios composed of multiple bond holdings and a continually changing bond composition. A completely new part of this Third Edition contains material coauthored by Martin Leibowitz, Anthony Bova, and Stanley Kogelman that reflects this reality. It provides valuable insights into the often-surprising return behavior exhibited by Duration Targeting (DT) portfoliosthe most common form of bond managementover multi-year horizons. Engaging and informative, this new part addresses some practical concerns in this arena as it: develops a trendline-based zero coupon bond model of Duration Targeting; explores the relationship between yield volatility and return volatility; moves beyond theory and simulated returns to the recorded returns of actual Duration Targeted 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 contains illustrative examples that will allow you to excel in today's challenging bond markets.
“The third edition of Inside the Yield Book builds on the previous editions with valuable insights into duration targeting. The authors convey their mathematically elegant findings with the same clarity and accessibility that characterized the writing of Leibowitz and Homer more than 40 years ago, before abstruse formulas began to permeate fixed-income analysis.”
—CFA Institute Book Review
A completely updated edition of the guide to modern bond analysis
First published in 1972, Inside the Yield Book revolutionized the fixed-income industry and forever altered the way investors looked at bonds. Over forty years later, it remains a standard primer and reference among market professionals. Generations of practitioners, investors, and students have relied on its lucid explanations, and readers needing to delve more deeply have found its explication of key mathematical relationships to be unmatched in clarity and ease of application.
This edition updates the widely respected classic with new material from Martin L. Leibowitz. Along the way, it skillfully explains and makes sense of essential mathematical relationships that are basic to an understanding of bonds, annuities, and loans—in fact, any securities or investments that involve compound interest and the determination of present value for future cash flows. The book also includes a new foreword.
- Contains information that is more instructive, important, and useful than ever for mastering the crucial concepts of time, value, and return
- Combines the clear fixed-income insights found in the original edition with completely new knowledge to help you navigate today's dynamic market
- Includes over one hundred pages of new material on the role of bonds within the total portfolio
In an era of calculators and computers, some of the important underlying principles covered here are not always grasped thoroughly by market participants. Investors, traders, and analysts who want to sharpen their ability to recall and apply these fundamentals will find Inside the Yield Book the perfect resource.
Praise for the Second Edition of Inside the Yield Book
The seminal book on bond analysis, now with new work on Duration Targeting
"It's pure pleasure to revisit this innovative and authoritative bedrock of modern bond analysis . . . the description of Wall Street's original 'rocket scientist' encountering Salomon Brothers' trading floor is worth the price of admission."
John Lipsky, Chief Economist, JPMorgan Chase
"This book transformed the markets' understanding of bonds. The new material in this expanded edition extends those insights to equities and other investmentsand the investment world is indebted anew to Sidney Homer and Martin Leibowitz."
Frank J. Fabozzi, PhD, CFA, editor of the Journal of Portfolio Management and Professor in the Practice of Finance at Yale University's School of Management
"Inside the Yield Book may not be where it all began, but it certainly is where it all began to be understood. The clarity and elegance of language and thought is startling. The new material will not disappoint. This book will live forever!"
Jack R. Meyer, President and CEO, Harvard Management Company
"Every participant in the fixed-income market needs to read and then reread this authoritative work."
Laurence Fink, Chairman and CEO, BlackRock
"The new edition gives us the best of both worlds: the complete classic that helped launch a golden age for fixed-income investing, and completely new sections that show how relevant and essential its wisdom remains today."
Lewis S. Ranieri, Chairman, Hyperion Partners
About the Author
MARTIN L. LEIBOWITZ
is a managing director with Morgan Stanley Research Department's global strategy team. Prior to Morgan Stanley, he was vice chairman and chief investment officer of TIAA-CREF. He is the author of numerous books, and over 200 articles on various investment analysis topics, ten of which have won the prestigious Graham and Dodd Award. Leibowitz has received three of the CFA Institute's highest awards: the Nicholas Molodovsky Award, the James R. Vertin Award, and the Professional Excellence Award. In 1995, he became the first inductee into the Fixed Income Analysts Society's Hall of Fame.
The late SIDNEY HOMER was the founder and general partner in charge of Salomon Brothers' bond market research department. Best known for his pioneering and analytical studies of bond market history and relative values and the economic forces that create bond market trends, he is the author of several books including A History of Interest Rates, The Bond Buyer's Primer, and The Price of Money. He was inducted posthumously into the Fixed Income Analysts Society's Hall of Fame in 1997.
ANTHONY BOVA is an Executive Director with Morgan Stanley Equity Research's Global Strategy team. He won Best Article in the ninth annual Bernstein Fabozzi/Jacobs Levy Awards presented by the Journal of Portfolio Management for his coauthoring of "Gathering Implicit Alphas in a Beta World." In 2008, Mr. Bova coauthored Modern Portfolio Management (Wiley), which focused on active equity strategies. In 2010, he coauthored The Endowment Model of Investing (Wiley) with Martin Leibowitz and Brett Hammond of TIAA-CREF.
STANLEY KOGELMAN is President of Delft Strategic Advisors, LLC, and a Principal at Advanced Portfolio Management. Prior to founding Delft Strategic Advisors, he served as a managing director at JPMorgan Private Bank and Goldman, Sachs & Co. He is the author and coauthor of more than sixty articles on finance and received two Graham and Dodd Awards and published two books jointly with Martin Leibowitz. In an earlier academic career, he held senior mathematics faculty positions and wrote several pioneering books on mathematics education, including Mind Over Math and The Only Math Book You'll Ever Need.
Table of Contents
Preface to the 2013 Edition ix
PART I: DURATION TARGETING: A NEW LOOK AT BOND PORTFOLIOS (2013 EDITION) 1
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
PART II: SOME TOPICS THAT DIDN’T MAKE IT INTO THE 1972 EDITION (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