Summary of Inside the Yield Book

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Inside the Yield Book book summary
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  • Innovative


Sidney Homer and Martin L. Leibowitz, the authors of this slim volume, accomplish a tough feat. They utter a piece of rudimentary financial advice in one sentence and then launch into mind-bending explanations of the calculus that makes the rudiments true. Maybe that’s why their 1972 classic has been in print for three decades. This updated version of the classic includes new forewords and some material that was cut from the original. Unless you’re an experienced bond trader or a finance whiz, this primer isn’t exactly easy reading. The authors waste little time on hand-holding. Still, it remains a complete look at its topic after all these years. getAbstract suggests this book to investors and traders who need a crash course – or a refresher course – in bond analysis.

About the Authors

Martin L. Leibowitz worked at Salomon Brothers & Hutzler when Inside the Yield Book was first published in 1972, and had a long career there. He holds a doctorate in mathematics and is also the author of Franchise Value and the Price/Earnings Ratio, Return Targets and Shortfall Risk: Studies in Strategic Asset Allocation and A New Perspective on Asset Allocation among other books. In 1995, he joined TIAA-CREF as chief investment officer. Sidney Homer was a long-time bond manager at Scudder, Stevens and Clark and joined Salomon in 1960 as director of bond market research. Homer was also the author of A History of Interest Rates and Price of Money: 1946 to 1969, among other books. He died in 1983 at age 80.



Reinvestment Rates and a New Way of Looking at Bonds

Determining the price of a bond was no simple task in 1972. Before the days of sophisticated financial calculators and ubiquitous personal computers, traders and investors who were negotiating investments could turn only to the “yield book,” a document that listed prices and yields for bonds of varying maturities. The yield book classified bonds on three scales:

  • Maturity: From short to medium to long.
  • Coupon: From low to high.
  • Price: From discount to par to premium.

Sifting through these variables was time-consuming because traders had to search the yield book’s tables by hand. The yield book became even more limiting in the 1960s and 1970s, as interest rates rose and bond issues became more complex. Traders had to spend more and more time paging through the yield book for answers. The bond market, however, quickly began to adapt to this volatility by using new technology.

When mathematician Martin L. Leibowitz joined Salomon Brothers & Hutzler, the firm had only one computer on its trading floor. In 1970, as interest rates soared past the levels in the yield books, traders...

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