Fixed Income: Learning Outcomes

© CFA Institute. For candidate use only. Not for distribution.
Fixed Income
LEARNING OUTCOMES
Fixed-Income Instrument Features

The candidate should be able to:
□ describe the features of a fixed-income security
□ describe the contents of a bond indenture and contrast affirmative and negative
covenants
Fixed-Income Cash Flows and Types

□ describe common cash flow structures of fixed-income instruments and contrast
cash flow contingency provisions that benefit issuers and investors
□ describe how legal, regulatory, and tax considerations affect the issuance and
trading of fixed-income securities
Fixed-Income Issuance and Trading

□ describe fixed-income market segments and their issuer and investor
participants
□ describe types of fixed-income indexes
□ compare primary and secondary fixed-income markets to equity markets
Fixed Income 19
Fixed-Income Markets for Corporate Issuers

□ compare short-term funding alternatives available to corporations and financial
institutions
□ describe repurchase agreements (repos), their uses, and their benefits and risks
□ contrast the long-term funding of investment-grade versus high-yield corporate
issuers
Fixed-Income Markets for Government Issuers

□ describe funding choices by sovereign and non-sovereign governments,
quasi-government entities, and supranational agencies
□ contrast the issuance and trading of government and corporate fixed-income
instruments
Fixed-Income Bond Valuation: Prices and Yields

□ calculate a bond’s price given a yield-to-maturity on or between coupon dates
□ identify the relationships among a bond’s price, coupon rate, maturity, and
yield-to-maturity
□ describe matrix pricing
Yield and Yield Spread Measures for Fixed-Rate Bonds

□ calculate annual yield on a bond for varying compounding periods in a year
□ compare, calculate, and interpret yield and yield spread measures for fixed-rate
bonds
Yield and Yield Spread Measures for Floating-Rate Instruments

□ calculate and interpret yield spread measures for floating-rate instruments
□ calculate and interpret yield measures for money market instruments
The Term Structure of Interest Rates: Spot, Par, and Forward Curves
□ define spot rates and the spot curve, and calculate the price of a bond using spot
rates
□ define par and forward rates, and calculate par rates, forward rates from spot
rates, spot rates from forward rates, and the price of a bond using forward rates
□ compare the spot curve, par curve, and forward curve
Interest Rate Risk and Return

□ calculate and interpret the sources of return from investing in a fixed-rate bond;
□ describe the relationships among a bond’s holding period return, its Macaulay
duration, and the investment horizon;
□ define, calculate, and interpret Macaulay duration.
20 Fixed Income
Yield-Based Bond Duration Measures and Properties

□ define, calculate, and interpret modified duration, money duration, and the price
value of a basis point (PVBP)
□ explain how a bond’s maturity, coupon, and yield level affect its interest rate risk
Yield-Based Bond Convexity and Portfolio Properties

□ calculate and interpret convexity and describe the convexity adjustment
□ calculate the percentage price change of a bond for a specified change in yield,
given the bond’s duration and convexity
□ calculate portfolio duration and convexity and explain the limitations of these
measures
Curve-Based and Empirical Fixed-Income Risk Measures

□ explain why effective duration and effective convexity are the most appropriate
measures of interest rate risk for bonds with embedded options
□ calculate the percentage price change of a bond for a specified change in
benchmark yield, given the bond’s effective duration and convexity
□ define key rate duration and describe its use to measure price sensitivity of
fixed-income instruments to benchmark yield curve changes
□ describe the difference between empirical duration and analytical duration
Credit Risk
□ describe credit risk and its components, probability of default and loss given
default
□ describe the uses of ratings from credit rating agencies and their limitations
□ describe macroeconomic, market, and issuer-specific factors that influence the
level and volatility of yield spreads
Credit Analysis for Government Issuers

□ explain special considerations when evaluating the credit of sovereign and
non-sovereign government debt issuers and issues
Credit Analysis for Corporate Issuers

□ describe the qualitative and quantitative factors used to evaluate a corporate
borrower’s creditworthiness
□ calculate and interpret financial ratios used in credit analysis
□ describe the seniority rankings of debt, secured versus unsecured debt and the
priority of claims in bankruptcy, and their impact on credit ratings
Fixed-Income Securitization
□ explain benefits of securitization for issuers, investors, economies, and financial
markets
□ describe securitization, including the parties and the roles they play
Fixed Income 21
Asset-Backed Security (ABS) Instrument and Market Features

□ describe characteristics and risks of covered bonds and how they differ from
other asset-backed securities
□ describe typical credit enhancement structures used in securitizations
□ describe types and characteristics of non-mortgage asset-backed securities,
including the cash flows and risks of each type
□ describe collateralized debt obligations, including their cash flows and risks
Mortgage-Backed Security (MBS) Instrument and Market Features

□ define prepayment risk and describe time tranching structures in securitizations
and their purpose
□ describe fundamental features of residential mortgage loans that are securitized
□ describe types and characteristics of residential mortgage-backed securities,
including mortgage pass-through securities and collateralized mortgage
obligations, and explain the cash flows and risks for each type
□ describe characteristics and risks of commercial mortgage-backed securities

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© CFA Institute. For candidate use only. Not for distribution.

Fixed-Income Instrument Features

Fixed-Income Cash Flows and Types

Fixed-Income Issuance and Trading

Fixed-Income Markets for Corporate Issuers

Fixed-Income Markets for Government Issuers

Fixed-Income Bond Valuation: Prices and Yields

Yield and Yield Spread Measures for Fixed-Rate Bonds

Yield and Yield Spread Measures for Floating-Rate Instruments

Interest Rate Risk and Return

Yield-Based Bond Duration Measures and Properties

Yield-Based Bond Convexity and Portfolio Properties

Curve-Based and Empirical Fixed-Income Risk Measures

Credit Analysis for Government Issuers

Credit Analysis for Corporate Issuers

Asset-Backed Security (ABS) Instrument and Market Features

Mortgage-Backed Security (MBS) Instrument and Market Features

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