Fixed Income

Fixed Income in CFA Level 2 builds upon foundational concepts with sophisticated analytical frameworks. The curriculum covers key areas like valuation of bonds with embedded options, where techniques such as binomial interest rate trees and option-adjusted spread analysis become crucial for assessing callable and putable bonds. Credit analysis receives deeper treatment, examining structural aspects of debt, capital structure implications, and recovery rates. Students learn advanced credit metrics beyond traditional ratios to evaluate default probability. Term structure analysis explores complex yield curve theories (expectations, liquidity preference, preferred habitat) and their practical applications in forecasting. Fixed income derivatives like interest rate swaps, options, futures, and credit default swaps are examined thoroughly, including valuation methodologies and risk management applications. Structured products such as mortgage-backed securities, collateralized debt obligations, and asset-backed securities are analyzed regarding cash flow mechanics, prepayment risk, and tranche structures. Duration and convexity concepts expand to include key rate durations and effective duration for complex instruments with embedded options. Credit spreads and relative value analysis techniques help identify investment opportunities across fixed income markets. Active portfolio management strategies are covered, including yield curve positioning, sector rotation, and credit strategies. Global fixed income markets receive attention, exploring international bond markets, currency considerations, and sovereign credit analysis. The curriculum emphasizes practical applications through complex calculations and case studies that reflect real-world scenarios. Candidates must demonstrate proficiency in quantitative techniques while understanding theoretical underpinnings of fixed income securities and markets. This knowledge creates a foundation for sophisticated bond portfolio management and risk assessment.

Fixed Income in CFA Level 2 builds upon foundational concepts with sophisticated analytical frameworks. The curriculum covers key areas like valuation of bonds with embedded options, where techniques…

Concepts covered: Credit Analysis Models, The Term Structure and Interest Rate Dynamics, Valuation and Analysis of Bonds with Embedded Options, Credit Default Swaps, The Arbitrage-Free Valuation Framework