Fixed Income Performance Attribution

unexpected, understand, different, situation, examples

In all of the examples I have seen the unexpected and expected interest rate effects have been equal for the portfolio and the benchmark.

I don't really understand this. Why are they the same if the manager is making active duration bets?

What situation would cause them to be different?

skycfa

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2^#

发表于 2011-7-11 19:47 | 只看该作者

expected interest rate effects = return on risk free benchmark assume no change in forward rate

Unexpected interest rate effects = return due to change in forward rate (due to yield curve twist for example)

These two effects represents performance of passive default free bond (not active mgn). So they are the same for benchmark and portfolio.

Active duration bets effect comes under interest rate mgn effect.

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Windjammer

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3^#

发表于 2011-7-11 19:47 | 只看该作者

Are you referring to default free as treasuries only?

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jmh530

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4^#

发表于 2011-7-11 19:47 | 只看该作者

So is the expected and unexpected values of the portfolio and the benchmark always the same? How can it be if in the section below, the manager made duration bets?

For instance, dur(BM) = 10 and dur(port) = 9

If manager made an active bet how can the expected and unexpected return due to changes in the default free curve be the same?

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lcai

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5^#

发表于 2011-7-11 19:47 | 只看该作者

Total Rp = Effect of external interest environment + Contribution of active management

Effect of external interest environment consists of
1) unexpected interest rate effects
2) expected interest rate effects.

Contribution of active management consists of
3) Return interest rate return
4) Return on sector mgn
5) Return on security selection
6) Return on trading activities

Active return from duration bet are shown under interest rate mgn effect (3) not under unexpected and expected interest rate effects (1 or 2).

Unexpected interest rate effects and expected interest rate effects shows only passively holding of passive default free bond (treasuries).

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wake2000

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6^#

发表于 2011-7-11 19:47 | 只看该作者

So expected interest rate effects of port will ALWAYS = expected interest rate effects of benchmark and unexpected interest rate effects of port will ALWAYS = unexpected interest rate effect of BM?

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Valores