Posts Tagged ‘shares’

Comfort with change of loan interest rates March 21st, 2010

admin

Future Orientation

If you scored low in this attribute, it means that you tend to rely on past events for making decisions about future events. This is a past orientation. If you scored high, you tend to use a planning style and hold people accountable for doing what they say they’ll do. This is a future orientation. If you have a past orientation, that tends to indicate a low level of trust—since you probably don’t trust people to do anything other than what they’ve done in the past. This assumption stifles any hope that things might be different and thus reduces the possibility for change. Having a future orientation is a step toward building trust between you and your partner.

Comfort with Change

If you scored low in this attribute, you’re probably uneasy about change. You like to do things the way they’ve always been done in the past and are uncomfortable with trying new things. You may have a low ability to trust and may rely on a past orientation to make decisions. If you scored high, you probably like change—and may even embrace it.And if you are comfortable with change, you probably also have a future orientation in your decision-making style and a high
ability to trust.

Comments Off

Continue reading...


 

Credit curves of two issuers will converge November 15th, 2009

admin

If an investor only has a view that the credit curves of two issuers will converge, but is not sure whether this will happen at wider or tighter spread levels, he would like to construct the box trade in a way that makes it insensitive to parallel shifts of the credit curves. In order to achieve this goal the trade has to be proceeds neutral. It is worth noting that the spread-neutral box trade is almost independent of the spreads, except for the minor impact of spreads on duration.

Remember that this trade is designed to protect investors from spread changes that might adversely impact their credit curve trade. Yet, often portfolio managers not only have a view on the relative changes of the credit curve of the two issuers but also on the direction of spreads. In this case the spread-neutral box trade is not optimal. The investor would rather choose a longer or shorter duration, depending on his view on the direction of spreads.

Comments Off

Continue reading...


 

Shortcomings of the credit curve November 13th, 2009

admin

A way to avoid the shortcomings of the above-described credit curve trade are duration-neutral box trades. Essentially, the trade consists of two legs. The investor buys the long-term bond of issuer A and sells the longterm bond of issuer B. Additionally, he sells short-term bonds of the first issuer and buys short-term bonds of the second issuer. Consequently, the trade benefits from a flattening of issuer A’s credit curve and a steepening of issuer B’s credit curve. This trade, of course, can be constructed to be duration neutral. Yet, there are myriad possibilities to do this. Assuming that no borrowing and leveraging are allowed the duration of the combined trade will always lie between the durations of the second shortest and second longest bond. While the position is insensitive to changes in the yield curve, its performance in general depends not only on changes of the credit curve but also changes of the level of spreads.

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...