Structured Credit, Securitization & Fixed Income Relative Value Desk
Deterministic yield curve curvature arbitrage, Agency residential mortgage negative convexity underwriting, syndicated corporate loan CLO subordination waterfalls, and TIPS inflation-indexed real rate workbenches. Engineered for rates relative value hedge funds, primary dealers, structured credit allocators, and bank ALM treasurers.
Treasury Butterfly Spread & Curve Twist Underwriter
Model sovereign yield curve curvature across 2s/5s/10s and 5s/10s/30s structures. Solve DV01 duration-neutral barbell versus bullet allocations, isolate 3-month roll-down drift from repo financing carry, and stress-test non-parallel curve twist scenarios.
• Institutional DV01 Duration-Neutral Barbell Weighting Solver
• 3-Month Carry & Roll-Down Yield Decomposition vs. Repo (SOFR)
• Interactive SVG Yield Curve & Butterfly Curvature Geometry
• 2D Sensitivity Matrix: Parallel Rate Shift vs. Curvature Twist
Agency MBS Prepayment & Negative Convexity Underwriter
Underwrite Fannie Mae and Freddie Mac residential mortgage pools. Model PSA prepayment speeds, convert CPR to Single Monthly Mortality (SMM), quantify negative convexity duration extension across interest rate cycles, and isolate true Option-Adjusted Spread (OAS).
• CPR to Single Monthly Mortality (SMM) Cash Flow Conversion
• Negative Convexity Duration Extension Under ±100 bps Shifts
• Interactive SVG S-Curve Refinance Response Function
• 2D Sensitivity Matrix: Benchmark Mortgage Rate vs. PSA Speed
CLO Tranche Waterfall & Loss Absorption Simulator
Model a standard $500M institutional Collateralized Loan Obligation (CLO 2.0/3.0) capital structure. Evaluate priority of payments waterfalls, Overcollateralization (OC) test diversion triggers, subordination cushions, and tranche loss attachment under stress default rates.
• Senior Class A/B Overcollateralization (121.5% OC) Auto-Remediation
• Cumulative Default Rate (CDR) & Recovery Rate Loss Absorption
• Interactive SVG Capital Structure Tranche Stack Visualizer
• 2D Stress Matrix: Annual Loan Default Rate vs. Recovery Rate
TIPS Breakeven Inflation & Real Rate RV Workbench
Deconstruct sovereign nominal Treasury yields into real yields and market-implied Breakeven Inflation (BEI). Calculate 5-Year, 5-Year Forward Breakeven Inflation (5y5y), model CPI-U principal index ratios with statutory deflation floors, and underwrite TIPS carry advantage.
• 5-Year, 5-Year Forward Breakeven Inflation (5y5y) Expectation Solver
• CPI-U Principal Index Ratio Multiplier & Deflation Floor Safeguards
• Interactive SVG Real vs. Nominal Curves & Shaded Breakeven Wedge
• 2D Sensitivity Matrix: Nominal Treasury Yield vs. Real TIPS Yield
Structured Credit, Securitization & Fixed Income Relative Value Desk Quantitative Architecture & Methodology
The Structured Credit & Relative Value Desk decomposes fixed income risk beyond simple parallel yield shifts. These models isolate non-linear yield curve curvature (butterflies), endogenous borrower prepayment options and negative convexity (Agency MBS), multi-tranche credit subordination and coverage test diversions (CLOs), and market-implied forward inflation expectations (TIPS).
Core Mathematical Formulations
Standard institutional rates relative value metric quantifying whether the intermediate curve belly is cheap (humped) or rich (dip) relative to wing tangents.
Solves exact wing notional allocations to ensure parallel curve shifts and slope rotations generate zero net dollar duration risk.
Converts annualized Conditional Prepayment Rates (CPR) into monthly principal prepayments, modeling the S-curve refinance response function.
Key structural covenant governing cash flow priority; breaches immediately redirect interest cash flows from equity to amortize senior AAA notes at par.
Target Institutional Audience & Applications
Construct duration-neutral 2s/5s/10s and 5s/10s/30s curvature trades, isolate 3-month roll-down carry, and hedge curve twist dislocations.
Model negative convexity duration extension under mortgage rate spikes, evaluate CPR burnout, and extract true Option-Adjusted Spreads (OAS).
Assess subordination cushions, test junior mezzanine loss attachment thresholds, and model residual equity cash distribution yields.
Manage liability-driven asset allocation, evaluate deflation floors on TIPS portfolios, and stress-test loan portfolio default absorption.
Cross-Asset Concept Guides & Recommended Reading
Institutional derivation of curvature, DV01 neutrality, roll-down return, and repo financing drag.
PSA prepayment benchmarks, CPR-to-SMM conversion, embedded homeowner call options, and OAS modeling.
Priority of payments indenture, OC/IC auto-remediation tests, and historical AAA credit enhancement.