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What are the strategies of bond portfolio management?


Bond Portfolio Management Strategies: Bond is good investments for investors who are willing to investors want to earn extra gain through bond portfolio. For this there are 3 strategies for bond portfolio management. These are:
1)      Active strategies
2)      Passive strategies
3)      Matched strategies
Active strategy: In this strategy investors not only invest money in bond portfolio but they also actively take some action to earn some extra money through bond by market fluctuations. There are various ways investor uses swap to outperform the market. Swap is an exchange of liabilities or cash to fulfil the needs. The types of swap use by investors are:
·         Tax swap: In this swap the bond sell at capital loss to offset the capital gain of other financial instrument. After some time purchases the similar bond portfolio. In this way investor reduces his tax by investing in a bond portfolio.
·         Substitute swap: In this swap the similar feature of bond is swap by other investors because according to an investor there is a change in bond price. So, by using this swap investor can earn more by exchanging expected low price bond to high price bond.
·         Inter-market spread swap: This swap is used by an investor to minimise the spread between two bond portfolios. By using this swap investors can exchange the bond to reduce their bond spread and earn gain from the market.
·         Pure yield pickup swap: In this swap investor can exchanging bonds with the purpose of earning high yield. The main purpose of this swap is attaining by exchanging low yield bond to low yield bond by investors.
Interest rate is also used to select the bond and buy and sell the bond to earn gain at the right time.
Passive strategy: In this strategy investors buy the bond portfolio and hold it till maturity date to earn money as expected by investors by holding a bond till maturity. The investors are not only just buying the bond portfolio but also selected the portfolio wisely so, that the portfolio will meet the objective of investors. The investors also monitor the performance of the bond portfolio to check the daily status of a bond portfolio.
There are two strategies used in passive strategy that is
·         Buy and hold strategy: In this strategy investors buy the bond portfolio and hold till maturity of the bond to earn more return for holding the portfolio till maturity.
·         Indexing strategy: In this strategy indexing is used which act a s a tool to measure the performance of a market. If market is efficient than the price of a financial instrument shows the market conditions. Indexing reflect the market conditions if market is efficient then index instrument prices moves up and down according to it.
Matched Strategy: In this strategy both the active and passive strategies are use that is active and passive strategy. In matched strategy the investors invested the money on those bonds which are matured at the time cash needed for an investor. There are two strategies are used:
·         Pure cash matched portfolio: It means cash is available when needed by investor. It happens only when bond portfolio matured at the time when cash is needed by an investor.
·         Cash matched portfolio with reinvestment: Cash is not available at the time it is needed. It means bond portfolio is not matured when cash required so, the investors re-invested to earn some gain and sell the bond when cash needed.

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