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bonomate02
Topic Author
Posts: 1
Joined: January 17th, 2019, 9:42 am

Risk adjusted return-bond portfolio

January 22nd, 2019, 8:26 pm

hi, i have 2 bond portfolios and i want to compare their return. The first one yields 0.5%, and has average life of 5yrs. The credit is AAA. The 2nd has yield of 3% and an average life of 12 years. The credit is a mix of AAA to BBB. What is the best way to compare the 2 bond portfolios?

Any ideas, much appreciated.
 
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nohedge
Posts: 2
Joined: February 1st, 2019, 5:51 am

Re: Risk adjusted return-bond portfolio

March 14th, 2019, 4:41 pm

Generally speaking, with a non-flat spot curve (which is the actual shape of such a curve in real life) the concept of yield to maturity is misleading and cannot really be used to compare two bonds, not even if they have the same credit rating. Therefore, in this case the situation is even more ambiguous and I would not be able to give an answer in the absence of further information. You can potentially argue that the yield already incorporates the rating, but still, with a non flat term structure you cannot really compare them. 
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