+1 862 207 3288 Part 1: (15 Marks) A. Calculate the dirty price, clean price, modified duration and modified convexity of the Government bonds as at the end of June 2014 and the end of December 2014. (5 marks)
B. Calculate the holding period return for each of the bonds over the period from the end of June 2014 to the end of December 2014. (5 marks)
C. Calculate the modified duration, modified convexity for an equally-weighted portfolio of the bonds at both dates and estimate the holding period return for the portfolio over the 6-month period between the two dates. Report on your findings. Compare and contrast the return and volatility of the portfolio and the separate bonds at both dates. (5 marks) (hint – the dirty prices you need for part A are found in an interim step in the duration calculation, no need to calculate them separately).
Part 2: (15 Marks) A. Use ALL available Government bond data (i.e. not just the bonds in your portfolio) to construct and present a yield curve, spot curve and forward curve as at the end of June 2014 and the end of December 2014. Your spot curve and forward curve estimation should go out no more than 5 years. Present and discuss your findings. (5 marks)
B. Review the predictive ability of the yield, spot and forward curves with comprehensive reference to the relevant academic literature. Discuss the curves that you have estimated in Part 2A with reference to this literature. Does the June 2014 forward curve appear to predict the 6 month spot rates at December 2014? Comment. (10 marks)
Part 3: (10 marks) Dealing Simulation Report Requirements: A: (4 Marks) Describe the shape and level of the current Yield Curve in Australian Commonwealth Government Securities (ie: at the time of your dealing sessions – use data gathered from the trading system in the FMTS, plot the curve and discuss it). Comment on its implications for Fixed-Interest fund managers. Based on your view of the yield curve, and other sources, what is your view on Interest Rates in Australia for the following time horizons: 6 Months• 12 Months•
B: (4 Marks) With respect to your trading portfolio: 1. Report on your Portfolio composition in Market Value Terms and Face Value Terms: (a) At the commencement of trading (b) After Dealing Session 2 2. What is the level of interest rate risk in your portfolio, as measured by: (a) Portfolio Modified Duration at the commencement of trading (b) Portfolio Modified Duration after Dealing Session 2 3. How has the interest rate risk profile of your portfolio changed? What are the implications for your portfolio in the current yield curve environment? 4. Comment on whether you achieved your set objectives with regard to interest rate risk: If you achieved your objective, what trading actions/strategy contributed to your• success? If you did not achieve your objective, what would you do differently?• Was your trading consistent with the market view developed in Part 2?•
C: (2 marks) Compare and contrast your performance from one dealing session to another. Discuss what you could do to improve future dealing sessions. What lessons did you learn and how did you perform as a team?
“Bill & Bond Position Summary
” TEAM_17_106515S1MMT2G1 19/05/2015
Security “Opening Pos
Face Value” Opening Pos Market Value Net Trades Face Value Net Trades Traded Value Current Pos Face Value Current Pos Market Value Profit / Loss Modified Duration
Bill
30 Day Bank Bill $250,000,000 $249,558,998 -$250,000,000 -$249,583,160 $0 $0 $24,162 0.0000
60 Day Bank Bill $250,000,000 $249,111,389 -$220,000,000 -$219,240,549 $30,000,000 $29,896,305 $25,465 0.1600
90 Day Bank Bill $100,000,000 $99,465,340 -$65,000,000 -$64,659,058 $35,000,000 $34,816,284 $10,003 0.2500
120 Day Bank Bill $200,000,000 $198,563,812 -$40,000,000 -$39,720,542 $160,000,000 $158,861,421 $18,150 0.3300
150 Day Bank Bill $100,000,000 $99,091,884 -$40,000,000 -$39,656,133 $60,000,000 $59,459,973 $24,223 0.4100
180 Day Bank Bill $100,000,000 $98,907,412 -$100,000,000 -$98,899,696 $0 $0 -$7,716 0.0000
$994,698,835 -$711,759,139 $285,000,000 $283,033,983 $94,286
Bond
CGS 4.75% Oct 2015 $250,000,000 $253,808,711 $20,000,000 $20,277,660 $270,000,000 $274,084,100 -$2,271 0.4200
CGS 6.00% Feb 2017 $350,000,000 $379,425,559 $30,000,000 $31,814,810 $380,000,000 $411,467,051 $226,682 1.6400
CGS 5.25% Mar 2019 $300,000,000 $338,154,970 $100,000,000 $111,280,901 $400,000,000 $448,051,580 -$1,384,292 3.4700
CGS 5.75% May 2021 $0 $0 $40,000,000 $47,287,489 $40,000,000 $47,216,739 -$70,750 5.1600
CGS 5.75% Jul 2022 $0 $0 $20,000,000 $24,310,036 $20,000,000 $24,370,044 $60,008 5.9100
CGS 5.50% Apr 2023 $0 $0 $60,000,000 $71,115,944 $60,000,000 $71,799,614 $683,670 6.5500
CGS 4.75% Apr 2027 $0 $0 $80,000,000 $93,278,202 $80,000,000 $93,384,775 $106,573 9.2900
CGS 3.25% Apr 2029 $0 $0 $350,000,000 $353,866,137 $350,000,000 $350,903,241 -$2,962,896 11.1000
CGS 4.5% Apr 2033 $0 $0 $120,000,000 $155,852,095 $120,000,000 $138,122,565 -$17,729,530 12.6400
$971,389,240 $909,083,274 $1,720,000,000 $1,859,399,708 -$21,072,806
TOTAL Profit/Loss -$20,978,520
Portfolio Summary Report TEAM_17_106515S1MMT2G1
OVERNIGHT CASH
Net Traded: $0 Net Interest: $0 Interest Cost to Square Pos: $0 Profit / Loss: $0
CASH BALANCES
“Opening
Cash:” “ONight Cash
Trades:” “Bill
Trades:” “Bond
Trades:” “FX
Trades:” Current Cash Bal:
$600,000,000 $0 $711,759,139 -$909,083,274 $0
PROFIT / LOSS
Cash P/L: $0 Bills P/L: $94,286 Bonds P/L: -$21,072,806 FX P/L: $0 Total P/L: -$20,978,520
MODIFIED DURATION
Bills Mod Dur: 0.3163 Bonds Mod Dur: 5.2236 Cash Mod Dur: 0.0027 Portfolio Mod Dur: 3.8518
“Cash / Bills / Bonds Transaction Log
” TEAM_17_106515S1MMT2G1 19/05/2015
No Counter Party Deal Date Yield Security Traded Face Value Buy/Sell Traded Value Notes
Bill Deals
1 TEAM_13_106515S1MMT2G1 05-May-2015 2.2000 90 Day Bank Bill $5,000,000.00 Sell $4,973,023.05
2 TEAM_11_106515S1MMT2G1 05-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Sell $19,967,177.24
3 TEAM_13_106515S1MMT2G1 05-May-2015 2.1800 120 Day Bank Bill $20,000,000.00 Sell $19,857,677.58
4 TEAM_12_106515S1MMT2G1 19-May-2015 1.9000 30 Day Bank Bill $20,000,000.00 Sell $19,968,815.82
5 TEAM_18_106515S1MMT2G1 19-May-2015 1.9500 30 Day Bank Bill $20,000,000.00 Sell $19,967,996.50
6 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
7 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
8 TEAM_14_106515S1MMT2G1 19-May-2015 1.7000 30 Day Bank Bill $20,000,000.00 Sell $19,972,093.79
9 TEAM_14_106515S1MMT2G1 19-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Sell $19,967,177.24
10 TEAM_13_106515S1MMT2G1 19-May-2015 2.0700 150 Day Bank Bill $20,000,000.00 Sell $19,831,298.14
11 TEAM_12_106515S1MMT2G1 19-May-2015 2.3000 180 Day Bank Bill $20,000,000.00 Sell $19,775,694.86
12 TEAM_13_106515S1MMT2G1 19-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Sell $19,967,177.24
13 TEAM_13_106515S1MMT2G1 19-May-2015 2.0800 60 Day Bank Bill $20,000,000.00 Sell $19,931,849.46
14 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 90 Day Bank Bill $20,000,000.00 Sell $19,896,971.84
15 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 120 Day Bank Bill $20,000,000.00 Sell $19,862,864.61
16 TEAM_13_106515S1MMT2G1 19-May-2015 2.1500 150 Day Bank Bill $20,000,000.00 Sell $19,824,835.36
17 TEAM_13_106515S1MMT2G1 19-May-2015 2.2000 180 Day Bank Bill $20,000,000.00 Sell $19,785,342.59
18 TEAM_13_106515S1MMT2G1 19-May-2015 1.9900 30 Day Bank Bill $20,000,000.00 Sell $19,967,341.09
19 TEAM_13_106515S1MMT2G1 19-May-2015 1.9900 30 Day Bank Bill $20,000,000.00 Sell $19,967,341.09
20 TEAM_19_106515S1MMT2G1 19-May-2015 2.0300 30 Day Bank Bill $20,000,000.00 Sell $19,966,685.72
21 TEAM_13_106515S1MMT2G1 19-May-2015 2.2600 180 Day Bank Bill $20,000,000.00 Sell $19,779,552.82
22 TEAM_13_106515S1MMT2G1 19-May-2015 2.2600 180 Day Bank Bill $20,000,000.00 Buy $19,779,552.82
23 TEAM_13_106515S1MMT2G1 19-May-2015 2.2600 180 Day Bank Bill $20,000,000.00 Sell $19,779,552.82
24 TEAM_19_106515S1MMT2G1 19-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Sell $19,967,177.24
25 TEAM_20_106515S1MMT2G1 19-May-2015 1.5000 30 Day Bank Bill $20,000,000.00 Buy $19,975,372.83
26 TEAM_13_106515S1MMT2G1 19-May-2015 2.2600 180 Day Bank Bill $20,000,000.00 Sell $19,779,552.82
27 TEAM_13_106515S1MMT2G1 19-May-2015 2.2600 180 Day Bank Bill $20,000,000.00 Sell $19,779,552.82
28 TEAM_13_106515S1MMT2G1 19-May-2015 2.0400 30 Day Bank Bill $20,000,000.00 Sell $19,966,521.89
29 TEAM_13_106515S1MMT2G1 19-May-2015 2.0400 30 Day Bank Bill $20,000,000.00 Sell $19,966,521.89
30 TEAM_13_106515S1MMT2G1 19-May-2015 2.0400 30 Day Bank Bill $20,000,000.00 Sell $19,966,521.89
31 TEAM_13_106515S1MMT2G1 19-May-2015 2.0400 30 Day Bank Bill $10,000,000.00 Sell $9,983,260.94
32 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Buy $19,931,196.42
33 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
34 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
35 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
36 TEAM_13_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Buy $19,931,196.42
37 TEAM_14_106515S1MMT2G1 19-May-2015 2.1000 30 Day Bank Bill $20,000,000.00 Sell $19,965,538.93
38 TEAM_14_106515S1MMT2G1 19-May-2015 2.1000 30 Day Bank Bill $20,000,000.00 Sell $19,965,538.93
39 TEAM_14_106515S1MMT2G1 19-May-2015 2.1000 30 Day Bank Bill $20,000,000.00 Sell $19,965,538.93
40 TEAM_14_106515S1MMT2G1 19-May-2015 2.1000 30 Day Bank Bill $20,000,000.00 Buy $19,965,538.93
41 TEAM_13_106515S1MMT2G1 19-May-2015 2.1200 60 Day Bank Bill $20,000,000.00 Sell $19,930,543.42
42 TEAM_13_106515S1MMT2G1 19-May-2015 2.1200 60 Day Bank Bill $20,000,000.00 Sell $19,930,543.42
43 TEAM_13_106515S1MMT2G1 19-May-2015 2.1200 60 Day Bank Bill $20,000,000.00 Sell $19,930,543.42
44 TEAM_13_106515S1MMT2G1 19-May-2015 2.1200 60 Day Bank Bill $20,000,000.00 Sell $19,930,543.42
45 TEAM_13_106515S1MMT2G1 19-May-2015 2.1200 60 Day Bank Bill $20,000,000.00 Sell $19,930,543.42
46 TEAM_18_106515S1MMT2G1 19-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Buy $19,967,177.24
47 TEAM_18_106515S1MMT2G1 19-May-2015 2.0000 30 Day Bank Bill $20,000,000.00 Buy $19,967,177.24
48 TEAM_19_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
49 TEAM_19_106515S1MMT2G1 19-May-2015 2.1000 60 Day Bank Bill $20,000,000.00 Sell $19,931,196.42
50 TEAM_20_106515S1MMT2G1 19-May-2015 2.1500 90 Day Bank Bill $20,000,000.00 Sell $19,894,531.73
51 TEAM_20_106515S1MMT2G1 19-May-2015 2.1500 90 Day Bank Bill $20,000,000.00 Sell $19,894,531.73
Bond Deals
1 TEAM_11_106515S1MMT2G1 05-May-2015 2.0020 CGS 6.00% Feb 2017 $10,000,000.00 Sell $10,826,949.36
2 TEAM_13_106515S1MMT2G1 05-May-2015 3.0510 CGS 6.00% Feb 2017 $20,000,000.00 Buy $21,276,078.29
3 TEAM_16_106515S1MMT2G1 05-May-2015 2.8000 CGS 6.00% Feb 2017 $20,000,000.00 Buy $21,365,681.26
4 TEAM_18_106515S1MMT2G1 05-May-2015 2.0000 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,548,898.83
5 TEAM_13_106515S1MMT2G1 05-May-2015 2.5700 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,103,236.51
6 TEAM_11_106515S1MMT2G1 19-May-2015 2.2500 CGS 5.25% Mar 2019 $20,000,000.00 Sell $22,371,155.26
7 TEAM_13_106515S1MMT2G1 19-May-2015 3.4100 CGS 5.25% Mar 2019 $20,000,000.00 Buy $21,493,172.13
8 TEAM_14_106515S1MMT2G1 19-May-2015 3.5000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $19,502,024.37
9 TEAM_13_106515S1MMT2G1 19-May-2015 2.8500 CGS 5.50% Apr 2023 $20,000,000.00 Buy $23,819,040.38
10 TEAM_12_106515S1MMT2G1 19-May-2015 2.7740 CGS 5.25% Mar 2019 $20,000,000.00 Sell $21,969,317.63
11 TEAM_19_106515S1MMT2G1 19-May-2015 3.4000 CGS 4.5% Apr 2033 $20,000,000.00 Buy $23,002,971.71
12 TEAM_11_106515S1MMT2G1 19-May-2015 2.1500 CGS 5.25% Mar 2019 $20,000,000.00 Sell $22,448,840.82
13 TEAM_19_106515S1MMT2G1 19-May-2015 2.1500 CGS 4.5% Apr 2033 $20,000,000.00 Buy $27,028,709.46
14 TEAM_19_106515S1MMT2G1 19-May-2015 2.1500 CGS 4.5% Apr 2033 $20,000,000.00 Buy $27,028,709.46
15 TEAM_18_106515S1MMT2G1 19-May-2015 2.2000 CGS 4.5% Apr 2033 $20,000,000.00 Buy $26,851,582.48
16 TEAM_13_106515S1MMT2G1 19-May-2015 2.2000 CGS 4.5% Apr 2033 $20,000,000.00 Buy $26,851,582.48
17 TEAM_12_106515S1MMT2G1 19-May-2015 3.0200 CGS 5.50% Apr 2023 $20,000,000.00 Buy $23,555,683.36
18 TEAM_13_106515S1MMT2G1 19-May-2015 2.5000 CGS 4.5% Apr 2033 $20,000,000.00 Buy $25,818,480.40
19 TEAM_15_106515S1MMT2G1 19-May-2015 2.9000 CGS 5.50% Apr 2023 $20,000,000.00 Buy $23,741,219.91
20 TEAM_13_106515S1MMT2G1 19-May-2015 3.5000 CGS 4.5% Apr 2033 $20,000,000.00 Buy $22,714,489.50
21 TEAM_13_106515S1MMT2G1 19-May-2015 2.4700 CGS 5.75% May 2021 $20,000,000.00 Buy $23,643,744.53
22 TEAM_13_106515S1MMT2G1 19-May-2015 2.4700 CGS 5.75% May 2021 $20,000,000.00 Buy $23,643,744.53
23 TEAM_18_106515S1MMT2G1 19-May-2015 3.2500 CGS 4.5% Apr 2033 $20,000,000.00 Sell $23,444,430.37
24 TEAM_19_106515S1MMT2G1 19-May-2015 3.0500 CGS 4.75% Apr 2027 $20,000,000.00 Buy $23,449,542.31
25 TEAM_16_106515S1MMT2G1 19-May-2015 2.3000 CGS 4.75% Oct 2015 $20,000,000.00 Buy $20,277,659.74
26 TEAM_13_106515S1MMT2G1 19-May-2015 2.7000 CGS 5.75% Jul 2022 $20,000,000.00 Buy $24,339,088.20
27 TEAM_11_106515S1MMT2G1 19-May-2015 2.4500 CGS 3.25% Apr 2029 $20,000,000.00 Buy $21,927,383.88
28 TEAM_13_106515S1MMT2G1 19-May-2015 3.1900 CGS 4.75% Apr 2027 $20,000,000.00 Buy $23,146,511.19
29 TEAM_19_106515S1MMT2G1 19-May-2015 3.1500 CGS 4.75% Apr 2027 $20,000,000.00 Buy $23,232,605.93
30 TEAM_12_106515S1MMT2G1 19-May-2015 2.0000 CGS 5.25% Mar 2019 $20,000,000.00 Sell $22,565,976.84
31 TEAM_13_106515S1MMT2G1 19-May-2015 2.1950 CGS 5.25% Mar 2019 $20,000,000.00 Sell $22,413,842.34
32 TEAM_11_106515S1MMT2G1 19-May-2015 2.6800 CGS 5.75% Jul 2022 $20,000,000.00 Sell $24,367,882.95
33 TEAM_14_106515S1MMT2G1 19-May-2015 3.2300 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,093,960.08
34 TEAM_14_106515S1MMT2G1 19-May-2015 3.2300 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,093,960.08
35 TEAM_13_106515S1MMT2G1 19-May-2015 2.6500 CGS 5.75% Jul 2022 $20,000,000.00 Buy $24,411,152.09
36 TEAM_13_106515S1MMT2G1 19-May-2015 2.6500 CGS 5.75% Jul 2022 $20,000,000.00 Buy $24,411,152.09
37 TEAM_14_106515S1MMT2G1 19-May-2015 3.3000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $19,938,469.93
38 TEAM_14_106515S1MMT2G1 19-May-2015 3.3000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $19,938,469.93
39 TEAM_14_106515S1MMT2G1 19-May-2015 3.3000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $19,938,469.93
40 TEAM_13_106515S1MMT2G1 19-May-2015 2.2300 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,386,666.54
41 TEAM_13_106515S1MMT2G1 19-May-2015 2.2300 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,386,666.54
42 TEAM_14_106515S1MMT2G1 19-May-2015 3.2000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,161,038.89
43 TEAM_14_106515S1MMT2G1 19-May-2015 3.2000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,161,038.89
44 TEAM_14_106515S1MMT2G1 19-May-2015 3.2000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,161,038.89
45 TEAM_14_106515S1MMT2G1 19-May-2015 3.2000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,161,038.89
46 TEAM_14_106515S1MMT2G1 19-May-2015 3.2000 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,161,038.89
47 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,116,290.23
48 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,116,290.23
49 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,116,290.23
50 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,116,290.23
51 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $20,000,000.00 Buy $20,116,290.23
52 TEAM_14_106515S1MMT2G1 19-May-2015 3.2200 CGS 3.25% Apr 2029 $10,000,000.00 Sell $10,058,145.11
53 TEAM_14_106515S1MMT2G1 19-May-2015 3.0500 CGS 4.75% Apr 2027 $20,000,000.00 Buy $23,449,542.31
54 TEAM_13_106515S1MMT2G1 19-May-2015 2.1790 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,426,278.74
55 TEAM_13_106515S1MMT2G1 19-May-2015 2.1790 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,426,278.74
56 TEAM_13_106515S1MMT2G1 19-May-2015 2.1790 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,426,278.74
57 TEAM_13_106515S1MMT2G1 19-May-2015 2.1790 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,426,278.74
58 TEAM_13_106515S1MMT2G1 19-May-2015 2.1790 CGS 5.25% Mar 2019 $20,000,000.00 Buy $22,426,278.74
59 TEAM_12_106515S1MMT2G1 19-May-2015 2.7900 CGS 3.25% Apr 2029 $20,000,000.00 Buy $21,104,898.29
60 TEAM_20_106515S1MMT2G1 19-May-2015 2.6000 CGS 5.75% Jul 2022 $20,000,000.00 Sell $24,483,473.20
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