CFA Fixed Income

Introduction (Yield Curve Dynamics, Convexity and Duration Review)

Active yield curve strategies are designed to capitalize on expectations regarding the level, slope, or shape (curvature) of yield curves. A yield curve shows the yield as a function of maturity (or sometimes of duration) for otherwise comparable bonds. Yield curves are most typically plotted for credit risk-free government bonds because they are generally available … Read more

CFA Fixed Income

Macaulay Duration, Money Duration and Modified Duration

Macaulay duration is the weighted average time until the cash flows of an instrument are received. That is why Macaulay duration of a zero-coupon instrument is its maturity, but Macaulay duration of a non-zero-coupon instrument is less than its maturity. The weights are based on each cash flow’s PV as a percentage of the total PV … Read more

CFA Fixed Income

Immunizing a Single Liability

Immunization is a fixed-income management process in which the portfolio is managed to minimize the variability of the rate of return earned over a specified time period. That means the future value (FV) of the portfolio can be confidently predicted, and if enough funds are invested initially, a known future liability can be funded. The most … Read more

CFA Fixed Income

CFA Level I: Bond Duration

Bond duration is one of the measure of interest rate risk on a bond. It measures the sensitivity of a bond’s price to changes in interest rates. One assumption of duration analysis is that all other variables are fixed. Essentially, bond duration tells us how much longer or shorter we need to hold a bond … Read more