Posts Tagged ‘money’

Gain debt independence with secure financial control April 22nd, 2010

admin

If you scored low in this attribute, you probably tend to be a highly independent person.While this is a valuable trait in many cases, it can be destructive in a partnership. Have you ever worked on a project and had someone go off on a tangent, leaving the rest of the team lost and bewildered? Genius, of course, often requires independent thinking.

But in partnerships, success comes from planning with others and then performing according to plan. If you’re uncomfortable relying on others for your success, you’ll have a difficult time being in partnership with others. People who are highly independent also tend to have a low ability to trust and feel uncomfortable about selfdisclosure, feedback, and change they cannot exclusively control. If you ranked high in this attribute, you probably are comfortable being interdependent and working in partnership. You may also have a high ability to trust and comfort with self-disclosure and feedback.

Comments Off

Continue reading...


 

A bond swap on an issuer’s credit curve November 7th, 2009

admin

In most cases portfolio managers do not expect the spread change to occur that is priced in forward spreads. If this view is strong enough, and if the portfolio manager has proven his skill in predicting corporate bond spread changes, he may decide to bet against the market, in other words to take an active position with respect to the credit curve. Several different ways to implement such trades will be discussed subsequently.

The first trade is simply a bond swap on an issuer’s credit curve. If an investor expects the credit curve to flatten more than implied by forward spreads over the holding period, he may switch out of short-term bonds into longer maturities. In order to keep the duration exposure constant, a part of the proceeds of the sale of the short-term bonds would have to be kept in cash. Although this trade can be constructed to be duration-neutral, the performance over the holding period relative to the benchmark depends on changes of the shape of the yield curve. A yield curve steepening can lead to the underperformance of the long bonds even if the credit curve flattens.

Comments Off

Continue reading...


 

Flat credit curves imply stable spreads November 5th, 2009

admin

It is important to note that upward sloping credit curves imply a widening of spreads, flat credit curves imply stable spreads and inverse credit curves imply tightening spreads. Again, as with government bonds implied spreads differ from expected future spreads. Longer term corporate bonds should not only contain a premium that compensates investors for accepting higher price volatility, but also for taking on additional credit risk.

A second observation with respect to forward credit curves is related to the slope: The steeper a credit curve is, the larger is the implied spread widening. If the spread widens less or more than indicated by forward spreads over the holding period, certain bonds will perform better than others. Portfolio managers who have a strong view on the spread changes they expect for an issuer’s bonds may benefit from this fact. If, for example, they expect the bonds of an issuer with an upward sloping credit curve, as France Telecom, to widen less than implied by forward spreads, they would prefer to own longer term bonds, because the additional carry should overcompensate the capital loss due to the expected spread widening.

Comments Off

Continue reading...