Just to clear some confusion, In book 4 p. 168, my understanding is a portfolio manager doesn’t seek to hedge spread risk but to capture value through spread changes that is why it is beneficial to increase the allocation to mortgage securities when spreads are high (buying low) and decreasing allocation when spreads narrow (selling high). Is this correct? I find the fixed income readings not written clearly.
that’s the way I understand it - and also agree on the readings - they are all poorly written in my opinion (esp 33-35)
Yup, that’s correct but how is this not written clearly or are you referring to other FI readings?
Yeah I’m also referring to other FI readings. Oh well just have to deal with it and make the best of it.
I am very much confused by many statements (w/o clear definition of many terms & explanations of why’s) in “immunization” & “2-bond hedge” of FI.
yeah i have to agree that the FI readings are horrendous. i think part of the problem is that they keep using various old school FI lingo, which its not even possible to look up! for example, they refer to interest rate “rallies”. wtf is an interest rate rally? why, naturally its when interest rates DECLINE!