Read e-book online Active Fixed Income and Credit Management PDF
By F. Hagenstein, Tim Bangemann
The authors give you the reader with an in depth software set for lively and profitable administration of mounted source of revenue portfolios in addition to for credit. the focal point of debate is on quantitative and, for credit, qualitative equipment of portfolio administration. those recommendations can be hired for portfolio diversification and so that it will outperform the benchmark. equipment appropriate for various hazard elements - length, yield curve, foundation, volatility and credits administration - are illustrated intimately utilizing a top-down and bottom-up procedure. numerous examples are awarded to teach the sensible relevance of the theoretical types and technique.
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Additional info for Active Fixed Income and Credit Management
Barbells allow for the establishment of a wide variety of curve positions, which are analysed in this chapter. 5 An increase in curvature 29 29 chapter three YIELD CURVE MANAGEMENT . 5*(2s ( + 10 s)) swaps . . . . – . – . – . – . . 6 2y–5y–10y DEM/EUR swaps barbell: positive (negative) spread indicates 5y are cheap (expensive) Source: CSFB Germany: 5s - average 2s and 10s vs. 7 2y–5y–10y barbell vs. 10y yields: a certain market directionality is apparent (the increase in 10y yields leads to increased curvature): June 1998–July 2000 Source: CSFB 10y yld ld volat l Butterﬂy ﬂ 2–5–10 ((SBS)) 25 15 20 10 % 5 5y underperf.
If in addition the bear market is led by speculations of interest rate increases, the impact is even greater. Positively sloping yield curves are typically concave, while inverse (negatively sloping) curves tend to be convex. 75 for the time period 1 January 1999 to 1 June 2000). Similarly, in bull markets where yield curves steepen – as was seen in most parts of the year 2001, as central banks decreased their key interest rates – real-money investors with a bullish, steepening view could position themselves in butterﬂy structures: that is, they could buy the body bond against selling the wing bonds, for example buying 5y versus selling 2y and 10y, or buying 10y versus selling 2y and 30y.
The important point to take from the above examples is to understand when yield curve anomalies can be taken advantage of and when there are permanent changes in regimes, which make the use of historical data of little use. 2 Market directionality of barbells A barbell position is deﬁned as being overweight in the short and long sectors (wings), and underweight in the intermediate sector (centre or body), and vice versa (butterﬂy); for example, being long 2y and 10y but short 5y. 8 uses equal risk weightings (50%:50% wings:body).