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Study Session 10-11: Fixed-Income Portfolio Management

Yield Curve Inversion

What’s going on :O

YC looking like a rollercoaster ride at Six Flags

Effect of rate change on performance of a bond hedge: Difficult question

Lets say I have a bond portfolio that i have hedged by shorting a certain number of futures.

In case all rates increase over 3 months, but short term rates increase less than the medium term rates and medium term rates increase less than long term rates. 

What effect will this have on the hedge??


CFA level 3 Mock PM 2019 - Question 40

Can someone please explain to me how they get those numbers for question 40? 

in the solution they post below formula and the results but no calculations: 

Predicted change = Portfolio par amount × Partial PVBP × (–Curve shift)

thanks in advance amigos

Barbell vs Laddered portfolio

Is it fair to say that barbell portfolios are more liquid than laddered portfolios because they have more short term bonds than laddered? I always thought laddered was more liquid because I thought I read that somewhere in CFA material but MM Mock#4 in PM section says that Barbell is more liquid…anyone else see this discrepancy?

Carry trade questions - Fixed Income

I am finding the carry trade questions in fixed income difficult. Any suggestion on how to go about learning this before the exam?

In particular the questions in the curriculum - question 23 to 30 (yield curve strategies) 

Spread widening

When spreads widen, we want to decrease allocation in corporate bonds and move to higher quality government bonds, is this correct?

MM Mock Exam 3 PM - Question 20 (Options and Effective Duration)

I’m having trouble wrapping my head around how call and put options affect effective duration and going a little crazy trying to find a good explanation in my books. The convexity effects make sense to me. Can someone explain how long/short call/put positions will impact effective duration? 

Vaguely remember this stuff being on L2 and maybe even L1… 

Inter-market carry trade


1) I cant seem wrap my head around this currency neutral inter-market carry trade concept. One of the strategies is “long position in 10-year bund futures and a short position in 10-year Treasury futures.” How does this strategy avoid currency risk when you long in EUR and short in USD?

Pavonia Case Scenario

This question was on the CAFI mock am. I do not understand why does measurement error occur while liquidity don’t?

 Is Adams is most likely correct in her assessment of measurement error?

  1. Yes
  2. No, because passive management would preclude measurement error
  3. No, because asset liquidity risk is greater than the risk of measurement error