Okay, so today I wanted to mess around with analyzing a fixed income portfolio. First, I needed some data to work with. I found a sample dataset online that had a bunch of bond holdings with details like issuer, coupon rate, maturity, and market value. That seemed like a good starting point.
I opened up my trusty spreadsheet tool and imported this data. Then, I started poking around to get a feel for what I was dealing with.
Getting Started
- Looked at the different types of bonds in the portfolio – mostly corporate bonds, some government bonds, a few others.
- Checked out the range of coupon rates and maturities. Saw some short-term stuff, some long-term, a real mix.
- Noticed some bonds were trading at a premium, others at a discount. Made a mental note to dig into that later.
Next, I wanted to get a handle on the overall characteristics of the portfolio.
Calculating Key Metrics
- Calculated the weighted average coupon rate. Just multiplied each bond’s coupon rate by its market value, added those up, and divided by the total portfolio value. Came out to around 4.5%, not bad.
- Did the same thing to get the weighted average maturity. This one was a bit trickier because of the different maturity dates, but I figured it out. Ended up around 7 years, so a medium-ish duration portfolio.
- Tried to calculate the yield to maturity for each bond, but that was a headache. The formulas were a pain, and I kept getting weird results. I decided to skip that for now and maybe come back to it later.
After that, I wanted to see how the portfolio’s value might change if interest rates moved.
Analyzing Interest Rate Risk
- I made a simple scenario where interest rates went up by 1%. I assumed the value of each bond would drop based on its maturity – longer maturity meant a bigger drop. It wasn’t super precise, but it gave me a rough idea.
- Did another scenario where rates went down by 1%. Same logic, but this time bond values went up.
- Looked at the results and saw that the portfolio was definitely sensitive to rate changes. A 1% increase in rates made the value drop by like 5%, which is pretty significant.
Finally, I wanted to get a sense of the credit risk in the portfolio.
Assessing Credit Risk
- I looked at the credit ratings for each bond issuer. Most were investment grade, but there were a few junk bonds in there.
- I grouped the bonds by rating category and calculated the percentage of the portfolio in each group. That gave me a better picture of the overall credit quality.
- I realized I didn’t have a good way to quantify the credit risk, other than just looking at the ratings. Maybe I could find some default probabilities for each rating category and use those, but that seemed like a project for another day.
So, that’s where I ended up. I didn’t get to everything I wanted to, but I learned a lot about this fixed income portfolio. It was a fun little exercise, and I feel like I have a better understanding of how these things work now. Maybe next time I’ll try to automate some of these calculations or find some better data to work with. We’ll see!
