Applied Portfolio Management - Video 4 - Fixed Income Asset Management

All slides are available on my Patreon page: / patrickboyleonfinance
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year, and to repay the principal amount on maturity. Fixed-income securities can be contrasted with equity securities - often referred to as stocks and shares - that create no obligation to pay dividends or any other form of income.
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What Is Portfolio Management?
Portfolio management is the art and science of selecting and overseeing a group of investments that meet the long-term financial objectives and risk tolerance of a client, a company, or an institution.
Portfolio management requires the ability to weigh strengths and weaknesses, opportunities and threats across the full spectrum of investments. The choices involve trade-offs, from debt versus equity to domestic versus international and growth versus safety.

[@whatacruelchoice]

I love that you decided to sport a bow tie for the bonds lesson.

[@based_gigachad6094]

I really wish he still did this type of content, this is way better. This guy is really smart and I love this stuff

[@Gogglesofkrome]

another amazing contribution to financial education on the internet. There is no expression that would reasonably portray just how much this has helped those who are willing to learn.

[@williamt104]

Well said, even after two years

[@GrumpyCat-mw5xl]

Agreed

[@RealWajahat]

Another great episode. 4 sessions done...

[@jevohn9898]

Thank you for making these videos

[@peterbradshaw8018]

Learnt about the three Cs from Jean Tirole's book Theory of Corporate Finance .

[@mhgscrubadub9917]

Thank you professor Boyle

[@msra9yw4]

Thanks Patrick! Very helpful

[@surething119]

Rare value everyday! I feel soo lucky for finding your class Mr. Boyle!

[@SusieAspen]

Thanks for explaining the Bond Ladder; it's perfectly logical. I needed you to point it out, however.

[@peacebywisdom]

It's about Bond. Investment Bond 😁.Thanks Patrick. Love your videos.

[@ianflem6489]

Thank you sir! I learned more in one hour than my entire life.🙏

[@amsalmeron]

Thanks you for the class!

[@chijiokekennedyanoka4844]

thanks for the class

[@leverageearnings8387]

The least seen videos always bring the highest quality of information. Thank you Mr Boyle !

[@yoginelson]

Patrick thank you for teaching me new info and refreshing my memories of the old.

[@emmanuelv9746]

Very good content enjoying how bond works. Thank you Patrick.

[@bagholderwithaplan]

Enjoying the series so far

[@joshuadias2468]

Hi Patrick, in your example at 37:00 bond valuation you mentioned a 5% bond where the next day the interest rates drop to 4%. So we would value the bond such that the 5% coupon would equal 4% interest on the bond. My question: **Why would someone buy the 5% bond vs the 4% bond if the interest you are getting on your capital is still 4%?** I came up with 2 scenarios. [a] If the amount to be invested perfectly fits a multiple of the 5% bond or a combination of the 5% and 4%. [b] If you want a bond that matures at the specific maturity date of the 5% bond.

[@RealWajahat]

Maybe because the new investor feels the interest rates would drop further, increasing the value of the bond thus profiting off the bond value difference?

[@joshuadias2468]

@@RealWajahat After the initial drop in interest both bonds will act the same depending on maturity.

[@Wa7edmenalnass]

No if you buy 5% interest bond that means it is fixed rate so it will be 5% Intel it hits maturity, why would you buy 5% instead of 4% well because it bays more.

[@joshuadias2468]

@@Wa7edmenalnass Let me explain what my question actually was. Lets say I bought a bond of par value $100 with a 5% coupon rate. The FED announces a rate cut of 1% the next day and with immediate effective all new bonds will be at 4%. This reduction in interest by the FED will cause all Bonds in the market with a higher interest rate to trade at a higher value. Hence the $100 bond which I bought which paid a $5 coupon will now trade at $125 instead of $100. The coupon will remain the same $5 but effectively is only returning 4% as the value of the bond is now $125. The question : If I want to buy a bond now, I can buy a $100 bond with $4 coupon or a $125 bond with a $5 coupon. But the actual yield/cash flow is still 4%. Why would someone chose one over the other??

[@Wa7edmenalnass]

@@joshuadias2468 Usually it sells at a discount for example at 115 or 120 and if it got to 125 that means invesors expect interest rates to go down more. This matter depends on how you look at markets are they efficient or behavioral.

[@minma02262]

I love you. You are amazing.

[@denisef7414]

My favorite class so far, thank you Mr. Boyle!

[@kristopherrobin4001]

Nice

[@riankashyap1996]

Pls cover portfolio management for short options where goal is to profit from theta decay portfolio. Payoff is non linear so how to manage risk and optimize capital allocations ???

[@robertocanales1201]

Thank you very much 😑🙏🏼

[@hfhfhf11]

Please tell me how CAN I work for you? Happy to work for free because the value to learn from you would definitely worth it.

[@square_waves8263]

I guess I just don't understand the ratings agencies in practice. Why don't the market participants just do this analysis themselves?

[@thomasa5619]

I presume as an “unbiased third party” If I’m required by my organisation’s constitution to use AA rated instruments, you can’t just let me self rate them?

[@square_waves8263]

The problem with that, at least as far as I understand it, is that the ratings agencies aren't unbiased third parties, they are clients of the guys selling the bonds.

[@thomasa5619]

@@square_waves8263 yeah that’s why I used the quote marks.

[@DREAMERS528]

"a bit of a conflict of intrest" such a nice way of saying blatant corruption 😂

[@kp2718]

54:10 - why prefer owning a callable bond then, if the rates are going up? It's not like anyone is going to buy it out?

[@ilililililili563]

i also tought about it and i either dont understand or smth is wrong with that example. The thing of callables was supposed to be more %, right? So it makes sense to want to have callabe over not-callabe in that case only if callabe was not 4% but more than 4% (due to it being callabe)? Were we supposed to assume that in callabe case its actually not 4% but more due to it being callable and make decision based on that?

[@peterbradshaw8018]

The Bond Book by Annette Thau was my introduction to bonds.

[@leonardotansil1643]

Thank you very much for the great explanation!

[@patrickhoulihan554]

Such a great series. Love it

[@screwball1010]

How is this series not behind a pay wall?

[@julkiewicz]

I guess it doesn't say how to get rich quickly :)

[@screwball1010]

Best worst jokes on YT

[@thomasa5722]

Hi Patrick, Great stuff. Did you post the PPT anywhere?

[@ss032010310103]

On his Pateron page. Link is in the description

[@Balance3rd]

So what your saying is I should buy Tesla calls

[@neues3691]

🤔

[@leverageearnings8387]

Gold

[@neues3691]

The fact that the rating agencies get paid by the companies giving out the bond sounds like a massive issue.

[@CarlAlex2]

Did you omit to mention bonds where the issuer has the option to extend them or did I miss it? I once held such a bond where I got 2 extra years of ok interest after the original maturity date. I also note that you didn't mention currency risk. I once got whacked by a very surprising devaluation of the Norweigian crown shortly before the maturity date of a bond in that currency (which isn't one I pay my bills in).

[@mrkasirye]

Thanks for this, very thorough.What's the name of your book on Fixed Income? The link in description is not working.