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Bond Strategies. Active and Passive. Active Bond Strategies. Active Bond Strategies. Strategic Frontier (Best Case - Worst Case) Interest Rate Anticipation Riding the Yield Curve Bond Swaps. 1. Strategic Frontier. 1. Strategic Frontier. 1. Best Case - Worst Case. I. II. IV.

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Bond strategies

Bond Strategies

Active and Passive



Active bond strategies1
Active Bond Strategies

  • Strategic Frontier (Best Case - Worst Case)

  • Interest Rate Anticipation

  • Riding the Yield Curve

  • Bond Swaps






2 riding the yield curve1
2. Riding The Yield Curve

The strategy applies to

this portion of the yield curve


Assumption you have money to invest for two years only
Assumption: You Have Money To Invest For Two Years Only

  • Option A: Invest in a 1-Year T-Bill at 6%, then roll it over for a second year (at the then-available rate)

  • Option B: Invest in a 2-year T-note at 7%

  • Option C: Invest in a 3-year T-note at 8% and sell it after 2 years



Assuming no shift in the yield curve
Assuming No Shift in the Yield Curve:

  • Option A yields a 6% return

  • Option B yields an 7% return

  • Option C (riding the yield curve) yields a 9.8% return. (Return = 1.8% price increase plus 8.0% current yield.)





Passive bond strategies1
Passive Bond Strategies

  • Ladder Strategy

  • Barbell Strategy

  • Immunization

  • Dedicated Cash Flow








3 immunization1
3. Immunization

  • “Locks in” a guaranteed rate of return

  • Exactly offsets the change in price with the change in reinvestment income.

  • The point of immunization is where: Time Horizon = Average Duration




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