Butterfly and Condor Trades
Butterfly trades are a leveraged way to capture value when curvature changes. They involve taking a long and offsetting short position …
level III
Adjusting Convexity
It is beneficial to have greater convexity when large changes in rates are expected. The convexity will magnify value gain …
Strategies for Changes in Market Level, Slope, or Curvature
Investors often hold individualized expectations about the yield curve that they generate from economic analysis, data mining exercises, following monetary …
Strategies under Assumptions of a Stable Yield Curve
Buy and hold: In an upward sloping curve, extend maturity (and therefore duration) to earn a higher yield and expected return. …
Major Types of Yield Curve Strategies
At the most basic level, fixed-income portfolio returns come either from yield (typically defined by the cash flows associated with …
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. …
Laddered Portfolios
A laddered portfolio is a common way to build a bond portfolio for individual clients. Roughly equal par amounts are …
Alternative Methods of Obtaining Passive Bond Market Exposure
The nature of the fixed-income markets generally makes full replication impractical. Enhanced indexing provides one acceptable alternative. Stratified sampling (cell matching) can …
Bond Indexes
Many investors seek a broader exposure to the fixed-income universe. These investors may be attracted to the risk versus return …
Immunizing Multiple Liabilities
The principle of interest rate immunization applies to multiple liabilities in addition to a single liability. There are several approaches …