Question 6

The US Treasury bond yield curve experienced a significant flattening in the first quarter of 2022. Explain how to structure a 2s10s duration-neutral US Treasury yield curve flattening strategy.

[8 marks]

Question 7

Inflation increased sharply in many countries in 2022. Explain how to structure a bond strategy that benefits from rising inflation expectations using the break-even inflation concept.

[8 marks]

Question 8

Explain how the US mortgage securitization process contributed to the 2008 global financial crisis.

[8 marks]

Question 9

On March 16, 2022, the US Federal Reserve increased the range for the Fed Funds rate by 25 basis and signalled six more rate increases to come. This is the first increase since 2018. Bond market participants monitor central banks closely to gain insight into future monetary policy decisions. Briefly describe how central bank policies affect the bond market.

[8 marks]

Question 10

A very long period of extremely low bond yields has forced some bond portfolio managers to take more risk to produce investment returns that meet investor income requirements. Briefly describe some of the strategies that bond fund managers can use to produce extra income and explain the associated risks.

[8 marks]