Fixed Income

Fixed Income at CFA Level 3 focuses on advanced portfolio management concepts for bond instruments. The curriculum builds upon fundamental valuation principles from earlier levels, shifting toward strategic applications and sophisticated risk management techniques. Key areas include yield curve strategies where portfolio managers position assets based on anticipated changes in interest rate term structures. This involves curve steepening, flattening, butterfly, and barbell strategies to optimize returns under different economic scenarios. Credit analysis becomes more nuanced, examining how to incorporate credit risk premia into portfolio construction while managing default exposure. Immunization strategies are explored thoroughly, including contingent, multiple-period, and cash flow matching approaches to align asset-liability profiles. Structured products receive significant attention, covering mortgage-backed securities, collateralized debt obligations, and asset-backed securities. Analysis includes prepayment risk, extension risk, and tranche evaluation. The curriculum addresses international bond investing, analyzing currency risk, sovereign risk, and yield differentials across markets. It explores hedging techniques using derivatives and cross-currency considerations. Liquidity risk management is emphasized, with frameworks for measuring, pricing, and controlling this risk across various fixed income vehicles. Active management techniques are contrasted with indexing approaches, discussing tracking error, information ratios, and benchmark selection. Performance attribution occupies a central role, decomposing returns into components like duration decisions, sector allocation, security selection, and curve positioning to evaluate manager skill. Finally, fixed income integration with broader portfolio construction is addressed, examining correlations with other asset classes, role in strategic asset allocation, and liability-driven investment approaches for institutional investors. Exam questions typically require both quantitative analysis and qualitative judgment in constructing optimal fixed income portfolios for specific client scenarios.

Fixed Income at CFA Level 3 focuses on advanced portfolio management concepts for bond instruments. The curriculum builds upon fundamental valuation principles from earlier levels, shifting toward st…

Concepts covered: Fixed-Income Active Management: Credit Strategies, Liability-Driven and Index-Based Strategies, Yield Curve Strategies, Overview of Fixed-Income Portfolio Management