By Frank J. Fabozzi, Lionel Martellini, Philippe Priaulet
So one can successfully hire portfolio recommendations that may keep an eye on rate of interest chance and/or increase returns, you need to comprehend the forces that force bond markets, in addition to the valuation and threat administration practices of those advanced securities. In complex Bond Portfolio administration , Frank Fabozzi, Lionel Martellini, and Philippe Priaulet have introduced jointly greater than thirty skilled bond industry execs that can assist you do exactly that.
Divided into six complete components, complicated Bond Portfolio administration will advisor you thru the state of the art thoughts utilized in the research of bonds and bond portfolio administration. subject matters lined comprise:
- General heritage details on fixed-income markets and bond portfolio suggestions
- The layout of a method benchmark
- Various elements of fixed-income modeling that might supply key components within the implementation of an effective portfolio and possibility administration procedure
- Interest fee hazard and credits probability administration
- Risk elements desirous about the administration of a global bond portfolio
packed with in-depth perception and professional suggestion, complicated Bond Portfolio administration is a important source for someone concerned or drawn to this crucial undefined.
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Additional resources for Advanced bond portfolio management: best practices in modeling and strategies
The analysis of the portfolio’s performance is referred to as an ex post analysis. There are three parts of the portfolio evaluation: selection of a benchmark, evaluation of returns, and evaluation of risks as measured in terms of tracking error. Selection of a Benchmark Before one can evaluate how a portfolio did, one has to know what it was supposed to do. 5% in 2004. 5% return was excellent for a short-term bond fund but terrible for a high-yield bond fund. To answer the question posed by the portfolio manager, one needs a benchmark for comparison.
Liquidity affects not only the cost of trading, but it also gives rise to creative trading strategies. Liquidity not only plays a role in determining the level of spreads, but also in establishing relative value between different sectors of the fixed income market. Indeed, because liquidity contributes to portfolio risks and because trading costs subtract from portfolio returns, portfolios that optimize across the spectrum of known risks and returns will have an optimal amount of liquid bonds and an optimal turnover ratio.
The breakeven indicates how much spreads have to change in order for a bond swap to have an excess return equal to zero. 15) To calculate a breakeven, let us continue with the example in which the investor sells Bond B at 50 basis points and swaps into Bond A at 80 basis points. 16) In this example, the initial spread of 30 basis points is exactly offset by a market move of −30 basis points. The breakeven spread is an important concept, but it is an incomplete measure of risk. The breakeven measures how much spreads could widen before a bond swap loses money, but it does not measure the likelihood of losing money.