Fixed income

CFA Level II
#1

[original post removed]

#2

Will give this a stab, I am sure someone with much more knowledge then me can give a better answer. Feel free to correct me if I am wrong!

  1. Yield and price move invesely. If yield curve is expected to rise the price is expected to fall. To hedge this you want to take an opposing trade that profits when the yield curve falls and price rises (hence buy as opposed to sell) Apply that logic to the different yield scenarios

  2. I could stand to be corrected here, but inflation benefits the issuer. You pay fixed coupons to the bondholder. Therefore inflationary pressure is a negative impact to teh bondholder loaning someone money. They should be receiving more in line with inflation in coupons but they are not as the rate is fixed. So presumably as this is a fixed income question, you are happy to become the investor here and receive fixed rates in a deflationary environment. You are receiving higher then the coupon is actually worth

  3. Payrolls come out more then expected so more jobs added. All the usual market moves that come with expansion. Equities improve, bonds either sell off in short term/possibly increase in long term. Dollar (if this is US based) strengthens. Again just my hunch

#3

than you rexthedog I appreciate your effort

#4

Could definitely discuss duration in those situations and how you could make an overall longer or shorter duration of your portfolio by making specific moves.

#5

If the yield curve is steepening I would go short duration and if it’s flattening I would go long duration assuming whatvi just said is right, how would I hedge the trade if I had a view that the belly of the curve would out perform??

#6

Hi ,

Regarding 1st question , I am already long the notes ,so probably I would buy put options against them or sell call options .

#7

Good response.

#8

Thanks guys