CFM Fixed Income & Credit Analysis Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CFM Fixed Income & Credit Analysis flashcards as text
What does a Z-spread represent in fixed income analysis?
Answer: The constant spread added to the entire Treasury spot rate curve to equal a bond's price
The Z-spread (zero-volatility spread) is added to each point on the spot rate curve to discount a bond's cash flows to its current market price.
What does a flattening yield curve typically signal in fixed income markets?
Answer: Slowing economic growth or potential recession expectations
A flattening curve, where short-term rates rise toward long-term rates, often signals market concerns about future economic slowdown.
What is a collateralized debt obligation (CDO)?
Answer: A structured product that pools debt instruments and issues tranches with different risk/return profiles
A CDO pools various debt assets (loans, bonds, MBS) and repackages them into tranches ranging from senior (least risky) to equity (most risky).
What is accrued interest on a bond?
Answer: Interest earned since the last coupon payment that must be paid by the buyer at settlement
When a bond is purchased between coupon dates, the buyer compensates the seller for interest accrued since the last coupon payment.
How is yield to maturity (YTM) best defined?
Answer: The single discount rate that equates a bond's cash flows to its current market price
YTM is the internal rate of return of a bond investment assuming all coupons are reinvested at the same rate until maturity.
What is negative convexity, commonly found in mortgage-backed securities (MBS)?
Answer: Price gains are smaller than duration predicts when rates fall, due to prepayment risk
When rates fall, homeowners prepay mortgages, shortening the MBS duration and limiting price appreciation — the opposite of the positive convexity seen in standard bonds.