CORPFIN 7040: Fixed Income Securities Semester 2 – 2024Matlab

Java Python CORPFIN 7040: Fixed Income Securities (M)

Semester 2 - 2024

Embedded Research Project

Due date:                                            Monday 3rd June at 4pm

Value:                                                25% of the overall assessment

Instructions:

1.   The tasks below may be completed in groups of 4  students.  Groups of 3 or 4 students are permitted. Groups with less than 3 students will receive penalty marks.

2.   There are four parts to the assignment.   In addition to the four parts, you will be assessed on how well the different parts of the assignment have been integrated and linked together. All group members will receive the same mark.

3.   Submit a soft copy of your write-up for the project in myuni under ‘Assignments.

4.   Your soft copy of the assignment must contain the student number of the group’s designated contact person, for example if your group’s designated contact person has  student number a1234567, then your write-up should be saved as “a1234567.docx”. You must also submit your group’s spreadsheet, which must be one spreadsheet with clearly labelled worksheets and saved as  “a1234567.xlsx” .    NOTE:  Any  group  not  submitting  two  online  files  (one  Word document and one Excel document) will automatically receive zero for the assignment.

5.   The presentation of your write-up is important. Poorly presented work may result in loss of marks.

6.   An assessment rubric is attached at the end of this document.

7.   Any suspected plagiarism will be severely punished. This includes any group that submits copied work or any student that allows their work to be copied.

8.   You must  acknowledge  any external material you use in your answers, e.g. material from websites, textbooks, academic journals and newspaper articles.

Fixed Income Securities: Semester 2, 2024

Embedded Research Project: Fixed Income Portfolios

Due date: Monday 3rd June at 4pm

NOTE: This project may be completed in groups.  The maximum group size is four.

Overview:

This assignment involves analysing the performance of Australian fixed income securities over the last 10 years, focusing on performance in different economic conditions.  In Task 1, you will look at the performance of various  segments of the Australian fixed income universe including short- and long-maturity Government bonds, corporate bonds and inflation-linked bonds.  In Task 2, you will look at the performance of various segments of Australian fixed income securities. In Task 3, you will examine a corporate bond fund ETF and examine how this portfolio’s holdings and returns change over time, and in response to changing market conditions. In Task 4, you will choose what type of bond portfolio your group believes is most suitable for the current interest-rate environment. Also, in Task 4, you are given the opportunity to consider forming a portfolio based on all funds and indices considered in the assignment.

Further instructions:

You may need to use Refinitiv database to obtain some data for this assignment. The total word count for the assignment must not exceed 5500 words.

The suggested maximum word count for each part (including an introduction and a conclusion) is as follows:

•   Introduction: 500 words

•   Task 1: 1000 words

•   Task 2: 1000 words

•   Task 3: 1000 words

•   Task 4: 1000 words

•   Conclusion: 500 words (including the links between different parts of the assignment)

You must write down the word count for each part (i.e. the introduction and conclusion and Tasks 1, 2, 3 and 4) and the total overall word count.

Task 1 (The performance of different segments of the Fixed Income Universe):

I.         Go to:https://www.spglobal.com/spdji/en/regional-exposure/asia-

pacific/australia/#indices

II.        Download data over the last 10 years for the following indices: CORPFIN 7040: Fixed Income Securities Semester 2 – 2024Matlab

a.   S&P Australia Aggregate Bond Index

b.   S&P/ASX State Government Bond Index

c.   S&P/ASX Australian Government Bond 0+ Index

d.   S&P/ASX Australian Government Bond 0-5 Year Index

e.   S&P/ASX Australian Government Bond 5-10 Year Index

f.   S&P/ASX Australian Government Bond 10+ Year Index

g.   S&P/ASX Australia High Yield Corporate Bond Index

h.   S&P/ASX Corporate Bond 0+ BBB-rating Bond Index

i.    S&P/ASX Australian Government Inflation-Linked Bond 0+

j.    S&P/ASX Australian Government Inflation-Linked Bond 0-15

k.   S&P/ASX Australian Government Inflation-Linked Bond 15+

III.       Calculate the mean and standard deviation of returns for each of the above series. Also compute the minimum, maximum and 1st, 2nd  and 3rd  quartile of returns for  each series.  Also produce a boxplot for these series.  Comment critically on your results.

IV.      Now repeat the analysis above but restrict your analysis to: (i) periods of high/low inflation and (ii) periods of high/low interest rates. (I will help you with this analysis).  Comment critically on your results.

Task 2 (Summary of suggested FIIG Portfolios):

I.         Go to the FIIG website:https://www.fiig.com.au/bond-portfolios.

II.        Highlight  the  differences  between  the  conservative,  balanced  and  high-yield portfolios by:

a.   Comparing the weightings of each of these portfolios by the different categories of:

i.   Bond Type (e.g. FCB,IAB, CIB  and FRN);

ii.   Security Type (e.g. Senior Debt, Sub-Debt, Tier 2);

iii.   Ratings (Investment Grade, Sub-Investment Grade, Un-rated);

iv.   Sectors  (Infrastructure,  Regional Banks, Other Financials, Semi- Government, Property, Insurance, Other Corporate, Automotive, Major Banks, Resources);

v.   Maturity  (Using  the  column  labelled  ‘Maturity/Call  Date’  or  by looking up the relevant bonds in Refinitiv database)

III.       Using appropriate assumptions, estimate the duration of:

a.   The conservative portfolio

b.   The balanced portfolio

c.   The high-yield portfolio

Note that for some of these portfolios you may need to do some duration analysis for callable bonds and/or inflation-linked bonds.  You will receive some help for this guidance.

IV.       Carefully explain how investors should interpret these duration measures.

Task 3 (Bond Exchange-Traded Funds): Consider the following 3 bond funds:

I.                 Australian Vanguard Fixed Interest ETF

https://www.vanguard.com.au/personal/products/en/detail/8207/Overview

II.               iShares Government Inflation ETF

https://www.blackrock.com/au/individual/products/251978/ishares- governmentinflation-etf#/

III.              VanEck Australian Corporate Bond Plus ETF

https://www.vaneck.com.au/etf/income/plus/snapshot/

IV.              What is the benchmark index for each fund? What are the management fees for this fund? How many individual bonds are there within the fund? What is the buy/sell spread cost?

V.                Calculate the mean and  standard deviation of returns for each of the above series. Also compute the minimum, maximum and 1st, 2nd and 3rd quartile of returns for each series. Also produce a boxplot for these series. Comment critically on your results.

VI.              Using Refinitiv Workspace and the bond holdings data for each fund, calculate how the duration of this fund varies overtime. Comment on your results.

Task 4 (Active bond portfolio creation)

I.      Please using ETFs from task 3 to create your active bond portfolio.

II.      You may need to use Refinitive database to download the bond ETF’s return data to create your portfolio.

III.      In your report, please explain what is the investment philosophy for the active strategy and the constraints you have applied in the excel solver.

IV.      Please evaluate and comment your portfolio based on the current economic conditions