Bond Portfolio Management. Investment Management Process Setting Investment Objectives –Return, Liquidity, Time Frame Establishing Investment Policy –Constraints:

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Presentation transcript:

Bond Portfolio Management

Investment Management Process Setting Investment Objectives –Return, Liquidity, Time Frame Establishing Investment Policy –Constraints: Client, Regulatory, Policy Setting a Portfolio Strategy –Active –Passive –Structure: Immunization, Cash Flow matching

Investment Management Process Selecting Assets –Identifying mispriced securities –Expectational Strategy Measuring & Evaluating Performance –Performance vis-à-vis benchmark –Success in meeting the objectives within the set policy

Tracking Error Active Returns –In excess of benchmark returns Tracking Error –Standard deviation of active returns –Ex-post & Ex-ante –In active and passive portfolio

Active Portfolio Strategies Interest Rate expectation strategy –Rate anticipation swap Yield curve Strategy –Butterfly and twists Yield spread Strategies –Importance of dollar duration in spread swaps

Duration of a Leveraged Portfolio Calculate the duration of levered portfolio Determine the dollar duration Calculate the ratio of dollar duration to initial equity Scale it up/down to find the duration (w.r.t 100 bps change in yield)