Fixed Income Analysis Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fixed Income Analysis flashcards as text
A bond analyst observes that the asset swap spread on a corporate bond has widened significantly while the bond's Z-spread remained stable. This most likely indicates:
Answer: A change in the swap curve relative to the Treasury curve
A divergence between asset swap spread and Z-spread indicates a movement in the swap curve versus the Treasury curve rather than a change in the bond's credit quality.
Under the market segmentation theory of the term structure, yield curve shape is primarily determined by:
Answer: Supply and demand conditions at each maturity segment independently
Market segmentation theory holds that different investor groups operate in specific maturity ranges, so supply/demand within each segment independently determines yields.
A portfolio manager uses a 'bullet' strategy centered on the 10-year maturity. Compared to a barbell of the same duration, the bullet will outperform when:
Answer: The yield curve steepens significantly
A bullet outperforms a barbell of equal duration when the yield curve steepens, because the barbell's long-end bonds are penalized more than the bullet's intermediate bonds.
The option-adjusted duration of a putable bond will be:
Answer: Longer than the duration of an otherwise identical straight bond
A putable bond has longer effective duration than an equivalent straight bond because the put option protects investors only when rates rise, leaving downside price exposure intact.
Which of the following best explains why high-yield bonds typically have lower duration than investment-grade bonds of the same maturity?
Answer: Higher coupon rates on high-yield bonds reduce their duration
High-yield bonds carry higher coupon rates to compensate for credit risk, and higher coupons weight cash flows toward earlier dates, reducing duration.
According to the CFA curriculum, which scenario would most likely cause a yield curve to invert?
Answer: Market expectations of aggressive future rate cuts after tightening
An inverted yield curve typically occurs when markets expect central bank rate cuts ahead, pushing short-term rates above long-term rates as current policy is tight.
A bond's spread duration measures its price sensitivity to changes in:
Answer: The bond's own credit spread, holding Treasury rates constant
Spread duration quantifies how much a bond's price changes for a 100 bps change in its credit spread, independent of Treasury rate movements.