Morgan Stanley Fixed Income Internship Presentation

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Morgan Stanley Fixed Income Internship Presentation

  1. 1. Fixed Income Division Charles Naut July 30 th , 2008
  2. 2. Fixed Income <ul><li>Differs from variable-income security (ex: common stock) </li></ul><ul><li>Yields a fixed return </li></ul><ul><li>Generally lower volatility than variable-income security </li></ul><ul><li>Types of fixed income: </li></ul><ul><ul><li>Corporate Bonds (debt) – interest/coupon </li></ul></ul><ul><ul><li>Preferred Stock – dividends </li></ul></ul><ul><ul><li>Pensions – annuity payment </li></ul></ul>
  3. 3. Asset-Backed Securities (ABS) <ul><li>Debt Security </li></ul><ul><li>Assets or cash flow from assets are securitized (pooled and repackaged) </li></ul><ul><li>Sell bonds backed by the pool of assets that are securitized </li></ul><ul><li>Diversified pool allows for risk reduction </li></ul><ul><li>Examples of Assets: </li></ul><ul><ul><li>Auto Loans </li></ul></ul><ul><ul><li>Student loans </li></ul></ul><ul><ul><li>Credit card payments </li></ul></ul><ul><ul><li>Mortgage loans </li></ul></ul>
  4. 4. Mortgage-Backed Securities (MBS) <ul><li>Commercial Mortgage-Backed Securities (CMBS) and Residential Mortgage-Backed Securities (RMBS) </li></ul><ul><li>Types of mortgages: </li></ul><ul><ul><li>Prime </li></ul></ul><ul><ul><li>Jumbo </li></ul></ul><ul><ul><li>Alt-A </li></ul></ul><ul><ul><li>Subprime (BC Loans) </li></ul></ul><ul><li>Risks: </li></ul><ul><ul><li>Interest Rate </li></ul></ul><ul><ul><li>Prepayment/Curtailment </li></ul></ul><ul><ul><li>Credit </li></ul></ul><ul><ul><li>Volatility </li></ul></ul><ul><li>Payment Options: </li></ul><ul><ul><li>Fixed Rate </li></ul></ul><ul><ul><li>Interest Only (IO) </li></ul></ul><ul><ul><li>Adjustable Rate Mortgage (ARM) </li></ul></ul><ul><ul><li>Hybrid ARM </li></ul></ul><ul><ul><li>Option ARM </li></ul></ul><ul><ul><li>Balloon </li></ul></ul>
  5. 5. Fixed Income Division (FID) <ul><li>Manages risk </li></ul><ul><li>Trades securities </li></ul><ul><li>Structures and executes transactions </li></ul><ul><li>Desks: </li></ul><ul><ul><li>Commercial Paper Trading </li></ul></ul><ul><ul><li>Corporate Derivatives </li></ul></ul><ul><ul><li>Listed Futures and Options </li></ul></ul><ul><ul><li>Securitized Products Group </li></ul></ul><ul><ul><li>Financing </li></ul></ul><ul><ul><li>Generalist Sales </li></ul></ul><ul><ul><li>U.S. Government Agency </li></ul></ul><ul><ul><li>Counterparty Portfolio Management </li></ul></ul><ul><ul><li>Debt Capital Markets </li></ul></ul><ul><ul><li>Commodities </li></ul></ul><ul><ul><li>Emerging Markets Research </li></ul></ul><ul><ul><li>Corporate Bond Desk </li></ul></ul>
  6. 6. Securitized Product Group (SPG) <ul><li>Desk of FID – Brings together FID and Investment Banking Division (IBD) </li></ul><ul><li>Securitizes assets and structures transactions to create fixed income products </li></ul><ul><li>Steps taken: </li></ul><ul><ul><li>Create trust or Special Purpose Vehicle (SPV) </li></ul></ul><ul><ul><li>Buy up loans </li></ul></ul><ul><ul><li>Sell loans to SPV </li></ul></ul><ul><ul><li>Hold loans and collect interest from payments before packaging </li></ul></ul><ul><ul><li>Get ratings for loans </li></ul></ul><ul><ul><li>Divide loans into tranches and package them into bonds </li></ul></ul><ul><ul><li>Sell bonds to investors </li></ul></ul><ul><ul><li>SPV pays investors from the interest collected on the loans </li></ul></ul><ul><ul><li>Make money on the residual (over-collateralization and money not paid to bonds) </li></ul></ul>
  7. 7. Tranches
  8. 8. Desk Strategists <ul><li>Quantitative Analysis </li></ul><ul><li>Deal with risk and PNL (Profit and Loss) </li></ul><ul><li>Devise strategies </li></ul><ul><li>Partner with traders and salespeople </li></ul><ul><li>Manage Practice Areas/Information Technology (IT) </li></ul><ul><ul><li>Create tools </li></ul></ul><ul><ul><li>Write software </li></ul></ul><ul><ul><li>Complete commissioned projects </li></ul></ul>
  9. 9. The End Thank You

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