Fixed Income

Fixed Income in CFA Level 1 covers securities that provide investors with regular income payments at fixed intervals. These primarily include bonds and other debt instruments where borrowers (issuers) promise to make specific payments to lenders (investors). Key topics in Fixed Income include: 1. Bond characteristics: Face value, coupon rate, maturity, yield, and price relationships. 2. Bond pricing: Present value calculations of future cash flows, incorporating time value of money concepts. 3. Yield measures: Current yield, yield-to-maturity (YTM), yield-to-call (YTC), and spot rates. 4. Term structure of interest rates: Yield curves and theories explaining their shapes (expectations, liquidity preference, market segmentation). 5. Risk considerations: Interest rate risk, duration, convexity, credit/default risk, liquidity risk, and call risk. 6. Bond sectors: Government bonds, municipal bonds, corporate bonds, mortgage-backed securities, asset-backed securities. 7. Credit analysis: Credit ratings, factors affecting creditworthiness, and spread analysis. 8. Securitization: Process of pooling assets to create new securities. 9. Fixed income portfolio strategies: Passive strategies (buy-and-hold, indexing) and active strategies (interest rate anticipation, credit analysis, yield curve strategies). The fixed income section emphasizes understanding how changes in interest rates affect bond prices (inverse relationship) and how various risk factors impact returns. Duration measures sensitivity to interest rate changes, while convexity captures the curvature in the price-yield relationship. Analysts must evaluate credit quality, yield spreads, and structural features when comparing different fixed income securities. Understanding these concepts helps portfolio managers construct fixed income portfolios aligned with investment objectives while managing various risks.

Fixed Income in CFA Level 1 covers securities that provide investors with regular income payments at fixed intervals. These primarily include bonds and other debt instruments where borrowers (issuers…

Concepts covered: Risks Associated with Investing in Bonds, Features of Debt Securities, Valuation of Bonds with Embedded Options, Measuring Interest Rate Risk, Overview of Fixed Income Markets