25728 Bond Portfolio Management

Subject level: Postgraduate

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

Assessment item 1: Two Assignments (Group)

Assessment item 2: Final Examination (Individual)

Indicative references

Fabozzi, F. J, Bond Markets, Analysis and Strategies, 4th Ed. (Prentice-Hall, 1999)

Fabozzi, F. J., Bond Portfolio Management , John Wiley & Sons, 2nd edition, 2001, ISBN: 1883249368

Garbade, K. D., Fixed Income Analytics, MIT Press, 1996

Hunt, B., Terry, C., 2004, Financial Institutions and Markets, 4th Ed., Thomson. ISBN: 0-17-012157-7

O'Brien, J. and Srivastava, S., Investments A Visual Approach: Bond Valuation and Bond Tutor, South-Western College Publishing, 1996

Tuckman, B., Fixed Income Securities, John Wiley & Sons, 2nd edition, 2002. ISBN: 0471063177

Websites