1. 22-24 June 2003 The Caledonian Hilton Hotel, Edinburgh
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Finance & Investment Conference Bond Asset Management – An Overview Paul Sweeting
22-24 June 2003
The Caledonian Hilton Hotel, Edinburgh

2. Topics
Types of bonds and their components
Credit ratings
Bond pricing
Benchmarks and indices
Liability-based benchmarks
Index-tracking
Active management
Risk controls
Implementation
Reporting

3. Types of bonds and their components
Government and credit
Fixed interest and index-linked
Sterling and non-sterling
Actual and synthetic
synthetic versions of hard-to-get bonds
corporate + inflation bonds = synthetic index-linked corporate
ilg + credit default swap = synthetic index-linked corporate
gilt + cds = synthetic corporate

4. Credit ratings
Investment grade
High yield

5. Investment grade corporates Sub-investment grade bonds
Bond pricing
Gilts
given by yield
Investment grade corporates
given by spread
Sub-investment grade bonds
given by price
quoted as p per £ if close to default

6. Benchmarks and indices
Single currency government bond indices
Global government bond indices
Single currency aggregate/corporate bond indices
Barclays Capital
iBoxx
Merrill Lynch
JP Morgan
Liability based

7. Benchmarks – desirable qualities
Transparent
From an experienced provider
Replicable
Representative
Investible
Flexible
Reflective of investor needs
Consistent

8. Index-tracking – why
No under-performance
Low fees
Diversification
Time-efficient
Rule-based decision making
but
Anomalous index construction
Corporate bond market inefficiencies
Replication challenges

9. Index-tracking – how
Full replication
Stratified sampling

10. Performance & dispersion
Active management
Sources of added value
market allocation
yield curve positioning/duration
sector allocation
stock selection
off-benchmark
Relative importance
Diversification
Performance & dispersion

11. Risk controls Client restrictions Modelling credit risk duration
country
credit
Modelling credit risk
ratings migration
contingent claims
market based

12. Implementation
Dealing in the market
New issues

13. Reporting
Frequency
Content
Commentary
Data
Other