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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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