Chapter 20 - issues which relieves pricing uncertainty and...

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1 Chapter 20 – Relative-Value Methodologies for Global Credit Bond Portfolio Management 1. Top-Down Approach: Uses economy-wide projections to allocate funds to global corporate asset classes 2. Bottom-Up Approach: Relies on selecting undervalued issues while maintaining a neutral position relative to the benchmark in terms of sector allocation 3. Primary methodologies for corporate relative value maximization – Total return analysis; Liquidity and trading analysis; spread analysis; structure analysis; credit curve analysis; fundamental credit and sector analysis 4. Corporate bond returns often perform best during periods of heavy supply – it seems counter intuitive – but the market regards this as a validation of outstanding
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Unformatted text preview: issues which relieves pricing uncertainty and reduces spreads 5. Product structures: Most issues are bullet and intermediate structures 6. Importance of liquidity & an active secondary market in a total return environment 7. Rationales for secondary trading: Spread pick by going to lower rating; Credit upside & defense trades; new issue swaps; sector rotation trades; yield curve adjustment trades; structure trades; cash flow reinvestment 8. Swap Trades – Fixed to Floating; Floating to Fixed; Examples 9. Appropriate trades – for a higher, lower, flatter rate environment 10. Rationales for not trading: Portfolio constraints, Buy and Hold & Seasonality 11. End of chapter problems: 14, 18, 19, 20...
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