9.39 Fixed Income Portfolio Management Strategies
Active Strategies
Definition:
Designed to earn above market returns (and involves active “thinking”).
Examples:
Bond Swaps
Tax
Credit – see comments above re: “Credit Spreads”
Coupon
Maturity/Term
Note:
Swaps may be proceeds trades (i.e., self-funding), involve a pay-up, or take-out of cash.
Passive Strategies
Definition:
Here the strategy drives the trading, rather than your “opinion.”
Examples:
Buy and Hold
Barbells – some (retail) analysts produce daily reports indicating the relative value of 5 and 10-year bullet bonds versus alternative barbell strategies of 2-10, 2-30, and 5-30. The yields are compared as well as any gain from convexity due to “barbelling.” The choice of the bullets or barbells assumes the “duration-neutrality” of the alternatives.
Structured Maturities – a.k.a. “Laddered” maturities.
Dedication – i.e., matching the cash flows of the “needs” with the assets, a.k.a., Cash Flow Matching.”
Immunization – matching duration of assets and “needs,” a.k.a., “Duration Matching.”
