The Back to Basics series of articles are being provided as an educational resource for credit unions. These articles focus on a number of basic, but key investment concepts, including economic theory, bond math, portfolio strategy, risk management process/systems, fixed income securities, regulatory issues, and more.
Rather than focusing on price and yield, most fixed income traders, analysts and portfolio managers use “relative” yield spreads to determine the best relative value in the fixed income market. In this article, discover how you can identify and quantify a security’s risk-premia by applying the appropriate spread valuation metrics, including nominal yield spread, Z spread and option adjusted spread.
From forecasting GDP growth, recessions and interest rates – discover four reasons why economists continue to make the wrong forecasts.
Investing in Bank Notes
Bank notes offer attractive spreads to comparable duration Treasuries and agency debt. Bank notes also offer attractive yields and prospective total returns that exceed short mortgage-backed securities and collateralized mortgage obligations. Independent third party credit analysis (via Gimme Credit) is presented as a solution to analyze credit risk.
Shifts in the market may present opportunities or threats to your investments. Likewise, changes in your balance sheet or ALM risk parameters may require changes to your investment allocations. This is when the versatility of bond swapping provides ample opportunities for credit unions to adjust to the changing environment.
Fixed Income Investing in Uncertain Times
The current environment has created a dilemma for credit unions, but with sound risk management policies and tools, success is obtainable. Discover five ways BondEdge’s fixed income analytical platform can help.
Investment Portfolio Risk Management
By utilizing the Balance Sheet Solutions fixed income portfolio analytics platform, credit unions will be better equipped to manage risks (portfolio duration, yield curve structure, sector risk, and security selection) and seize opportunities as they arise.
The upward swing of primary mortgage rates presents hybrid ARM issuance as an attractive alternative to longer, and perhaps riskier, maturity securities
How do credit unions achieve a respectable rate of return without experiencing the higher risk associated with the fluctuation of interest rates? For those who are perplexed and uncertain about the future, keeping it simple via the tried-and-true bond ladder may be one of the most effective, all-weather approaches for fixed income investing.
Rolling Down the Curve
One of the easiest and time-tested strategies for making money investing in bonds is called “rolling down the yield curve.” Rolling down the yield curve can significantly enhance returns versus buying a shorter-maturity security, or staying in overnight funds.
Investing Excess Cash Reserves
Many credit unions are well prepared for higher rates. What they may not be prepared for is a continuation of low interest rates. If the balance sheet does not need excess liquidity, maintaining high cash reserves actually increases risk. The best way to quantify and identify the most attractive risk-return tradeoff is to run scenario analyses on securities that are being considered for purchase.
Is That Security Creditworthy? Look Before You Leap
To preserve the potential income offered by corporate debt securities while managing risk, many credit unions are turning to professional bond research and analysis services, such as Gimme Credit. Gimme Credit is a third-party credit analysis service that can enhance the overall risk management of investment portfolios and expand investment opportunities – while reducing regulatory burdens.
Overview of FNMA DUS Securities
Due to the attractive yields, highly defined principal window and stable predictable cash flows, DUS bonds can be used as an alternative investment to Agency bullets, callables or traditional single family amortizing Agency MBS.
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