Reading 30: Relative-Value Methodologies for Global Credit

statements, corporate, following, decrease, increase

LOS b: Evaluate the portfolio implications of cyclical changes in the primary corporate bond market (such as an increase or decrease in new issue supply) and secular changes (such as a shift in dominant product structures).

Q1. Which of the following statements about bullet maturity bonds is TRUE?

A) Bullet and intermediate structures are currently dominant in all but the high yield segment of the corporate bond market.

B) A majority of bullet maturity bonds have sinking funds.

C) A call feature is an integral part of a bullet maturity bond.

Q2. Which of the following statements about bond markets is FALSE?

A) Technological advancements, together with increased competition among corporate bond traders, will lead to less liquid global corporate bond markets because the number of issues available will not increase at a fast enough pace to keep up with the increased level of demand.

B) Although duration tilts can be accomplished with corporate bonds, many bond managers prefer the use of Treasuries to play the yield curve.

C) Qualitative issues that differentiate the management of an international bond portfolio versus a purely domestic one, include, differences in time zones and differences in market structure and conventions.

Q3. For the management of a fixed-income portfolio, which of the following is an important implication of the increasing supply of corporate bonds within the last decade?

A) Portfolio managers have more ways to satisfy their risk and return objectives.

B) The average bond duration has increased.

C) The relative performance of corporate bonds has decreased.

Q4. For the management of a fixed-income portfolio, which of the following is an important implication of the change in the dominant product structure in the primary corporate bond market within the last decade?

A) Intermediate maturity bonds are scarce and, therefore, demand a premium price.

B) Option-free bonds are scarce and, therefore, demand a premium price.

C) Securities structured with embedded options are scarce and, therefore, demand a premium price.

Q5. Which of the following statements about cyclical and secular changes in the primary bond market is FALSE?

A) One factor that can cause structural changes in the bond market is the desire of issuers to minimize financing costs under different yield curve and spread scenarios.

B) Structural changes in the composition of the bond market can occur rapidly.

C) Relative corporate bond returns frequently perform best when the supply of bonds is relatively plentiful.

Q6. Which of the following statements about bond market characteristics is FALSE?

A) During the 1990s, new bond issuances had narrower spreads and relatively strong returns.

B) Callable issues are no longer dominant in the high-yield segment of the corporate bond market.

C) Bond mangers adjust their portfolios in response to, or in anticipation of, structural changes in the composition of the bond market.

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