University of Technology SydneyHandbook 2008

25728 Bond Portfolio Management

Faculty of Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): 25721 Investment Management OR 25741 Capital Markets
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This is a specialised subject focusing on the conceptual and theoretical aspects of interest rates and risk management in bond markets. The subject includes discussions of the term structure of interest rates, bond pricing and bond portfolio strategies. It also includes a large applied component involving the construction of yield curves and the analysis of bond market data, as well as the construction and management of bond portfolios.

Subject objectives/outcomes

On successful completion of this subject students should be able to:

  1. Understand the characteristics of the term structure of interest rates
  2. Evaluate the characteristics of fixed income portfolios
  3. Understand and apply the tools to evaluate interest rate sensitivity of bonds and bond portfolios
  4. Use bond portfolio strategies for risk management
  5. Analyse mortgage-backed securities.

Contribution to graduate profile

This is a specialised subject focusing on many aspects of the valuation and risk assessment of fixed income securities and portfolios. The subject makes a contribution to the course by ensuring that students are provided with a detailed analysis of the techniques used by analysts and fund managers in the construction of yield curves, analysis and valuation of fixed income securities and the construction and management of bond portfolios.

Teaching and learning strategies

The subject is presented using a combination of lectures and workshops. These classes will be supplemented with both printed and electronic learning materials and resources. The UTS web-based communication tool (UTS Online) will be used. EXCEL spreadsheets, including user-defined macros, are extensively used in the application of theory presented in lectures to market data and practical problems.

Content

  • Bond pricing and yield measures
  • The term structure of interest rates
  • The yield curve, spot rate curve and forward curve
  • Pricing of fixed and floating rate bonds
  • Return analysis
  • Price volatility measures: Duration, Convexity
  • Duration, convexity and the yield curve
  • Bond Portfolio Management Strategies.

Assessment

Two Assignments (Group)30%
The assignment is designed to assess students' understanding of the theories and concepts to demonstrate that students have met objectives 1-3.
Final Examination (Individual)70%
This exam will test students understanding of the theory and their ability to apply the theory to practical problems. This will enable students to demonstrate that they have met objectives 1-5.

Recommended text(s)

Tucman. (2001). Fixed Income Securities: Tools for Today's Markets, Second Edition.

Indicative references

Fabozzi, (2000), Bond Markets, Analysis and Strategies, 4th Ed. Prentice-Hall

Fabozzi, (2001), The handbook of Fixed Income Securities, 6th Ed. McGraw-Hill

Garbade, (1996), Fixed Income Analytics, MIT Press

Sundaresan, (1996), Fixed Income markets and their Derivatives, South-Western Pub.