A member of a firm’s investment committee is very interested in learning about the management of fixed-income portfolios. He would like to know how fixed-income managers position portfolios to capitalize on their expectations concerning three factors which influence interest rates. Assuming that no investment policy limitations apply, formulate and describe a fixed-income portfolio management strategy for each of the following interest rate factors that could be used to exploit a portfolio manager’s expectations about that factor. (Note: Three strategies are required, one for each of the listed factors.)
a. Changes in the level of interest rates.
b. Changes in yield spreads across/between sectors.
c. Changes in yield spreads as to a particular instrument.
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