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Corporate bond trading strategies


corporate bond trading strategies

analysis edit Compared to government bonds, corporate bonds generally have a higher risk of default. Yield Curve Shifts, because the yield curve involves a continuum of interest rates, changes in the yield curve can be described as the type of shift that occurs. The 20 gain (ignoring time value of money) is in lieu of the regular coupon. A less common feature is an embedded put option that allows investors to put the bond back to the issuer before its maturity date. A quality swap can be profitable whether interest rates increase or decrease, because profit is made from the spread. What is a bond? Spreads exist between bonds of different credit quality, and between differences in features, such as being callable or non-callable, or putable or non-putable. So a portfolio must focus on the most liquid bonds with high trading volumes and bond issues which are about to change in value.

In this case the bond, a zero-coupon bond, is sold at a discount (i.e. This disciplined multifaceted framework provides the basis for our country, industry, and issuers weightings, duration, curve, currency and instrument selection decisions, as well as relative value assessments. The types of yield curve shifts that regularly occur include parallel shifts, twisted shifts, and shifts with humpedness. Both of these features are common to the High Yield market. Bond strategies can be classified as active, passive, hybrid. A bullet strategy is a portfolio whose duration is allocated to 1 maturity group. While some might argue that this is a consequence of the degree of fragmentation in the bond market, I would point to options markets and European bond markets-which are similarly fragmented, but much more transparent on a pre-trade basis.

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Bond liquidity, liquidity describes how easy it is to sell a bond. Strictly speaking, however, it only applies to those issued by corporations. This is, for example why the Option Adjusted Spread on a Ginnie Mae MBS will usually be higher than zero blame the streets future to the Treasury curve. Bakewell, Bloomberg, Business, pple Sells Two-Part Swiss Franc Bond. Edwards, The Wall Street Journal).

Sovereign research forms the foundation for this framework and, consistent with the firms overall investment philosophy, our approach begins with a secular analysis of the global economy. If rates were expected to increase, then bonds with shorter durations would be purchased, to minimize interest-rate risk. Only short-term bonds (maturing in two years or less) and long-term bonds (maturing in 20 to 30 years) are purchased. Another score that is commonly used is the Hillegeist Z-score (HS which is an updated estimate of the Altman Z-score Hillegeist Z-score.835.13.0 05.2 69.3 99.033 S The 1 year probability of default 1 (exp (HS). Hence, transaction costs must be weighed against market risk when bond and liability durations diverge. The minimum amount required to invest in a Treasury bond is Sh50,000. It is the amount paid to the holder on the bond's maturity date. If long-term rates decline, then the safety margin is increased, but any increases in the interest rate will decrease the safety margin, possibly.

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