BOND MATH: The Theory Behind the Formulas

A Real Bond Portfolio

This portfolio is comprised of four U.S. Treasury securities, including positions in 2-year and 10-year coupon T-notes, the 30-year coupon T-bond, and, just to make things interesting, the 30-year zero-coupon P-STRIPS. Figures 9.1 to 9.4 show the Bloomberg Yield Analysis (YA) and Option-Adjusted Spread Analysis (OAS1) pages for each security for settlement on November 15, 2010. Conveniently (and intentionally) each Treasury matures on November 15^th, so the accrued interest is zero and all future cash flows are scheduled for May 15^th and November 15^th of each year. That makes it easy to build a spreadsheet to illustrate the portfolio statistics.

Table 9.1 summarizes the risk and return characteristics on the individual Treasuries ...