Strategic Fixed Income Investing

SEAN P. SIMKO is the Head of Fixed Income Portfolio Management at SEI, and a sought-after expert on fixed income investing and the financial markets. He leads a team of investment professionals responsible for research, analysis, implementation, and ongoing portfolio management of over $7 billion of fixed income strategies. Prior to joining SEI, Mr. Simko was vice president and portfolio manager for Weiss Peck & Greer Investments and was responsible for managing approximately $6 billion in assets through various strategies including short duration, tips, structured products, futures, and currencies. Mr. Simko has appeared on Bloomberg TV and radio and frequently on Money Matters, and he is regularly quoted in the Wall Street Journal and other mainstream publications. He has written numerous articles for financial magazines, including most recently, December's issue of Investment Advisor.

• Preface xiAcknowledgments xiiiPart One The Investing Environment 1Chapter 1 Expect the Unexpected 3The Model Has Changed 4Lessons Learned 4From Bad to Worse 5Chapter 2 Navigating through Troubled Water 7Debt Ceiling 8Triple A: Lost, but Not Forgotten 8Possible, but Not Probable, Consequences 9Warning Signs 12Chapter 3 Lessons Learned 15Patterns Emerge 16Money Markets 18Treasury Bills, the Favored Asset Class 20Municipals Felt the Pain as Well 25Auction-Rate Markets Were Hit Hard 27Chapter 4 Direction in a Sometimes Directionless Market 29Finding Direction 30Part Two The Fixed Income Investor 35Chapter 5 Define the End Investor 37Risk 40Risk-Averse Investor 42A Problematic Trade? 43Risk-Taking Investor 44Define Your Strategy 45Active Strategy 47Chapter 6 Portfolio Construction 49Factor 1: Defining Your Risk 50Factor 2: Aligning Goals 51Conservative Strategy 54Moderate Strategy 56More Aggressive Strategy 56Factor 3: Portfolio Analysis 59Reduction of Credit Risk 62Government Securities 64Risks to Consider 65Bottom Line 69Chapter 7 Asset Allocation 71The Road Map 72Going Global 76Chapter 8 The Federal Reserve and Central Banks 81Hawks and Doves 82The Fed Funds Rate 82A Short-Term Fixed Income Investor 83Hooked on Accommodation 83Deposits with Central Banks 84What about the United States? 86FOMC: Look for Clues from the Fed Statement 88What to Look For from the Fed Clues? 88FOMC Statement: August 2011 89QE or Not QE 92Calming Statements for Investors 93Chapter 9 The Economy and the Markets 95The Payroll Picture: The Backbone to the Economy 97Bureau of Labor Statistics Website 97Inflation: A Fixed Income Investor’s Enemy 103Consumption: America’s Fuel 109The Federal Chairman: The Wizard Himself 110Chapter 10 The Yield Curve 111The Spread 115The Money Market Arena 116The Direction of Rates 118A Steep Yield Curve 119A Flat Yield Curve 120An Inverted Yield Curve 121Listen to the Curve 123Chapter 11 The Ladder and Why You Need One 125How It Works 126The Concept 126The Goal 129The Long End Poses Challenges 131The Front End Is Technical 133Varieties of Short-Term Strategies 133The Sweet Spot 134Liquidity 134Consistent Coupons 137Why Is Supply Important? 138Performance and How to Measure It 140Low-Turnover Dilemma 141Success of a Strategy 142Chapter 12 Alternatives to a Traditional Ladder Strategy 145TIPS: The Other Treasury 147Break-Even Opportunity 148Consider MBS Pools of Mortgages 150Consider Corporate Bonds 151Floating-Rate Notes 153What Is LIBOR? 154A Deeper Look at LIBOR 154The Bottoming Process 156Chapter 13 Credit Analysis 159The Agency 159Credit Analysis: Necessary, Not Optional 160Credit for a Passive Strategy 161After the Initial Approval 163Not All Bonds Are Equal 164Stay Ahead of the Herd 166Chapter 14 The Four Pillars of Trade Execution 169The First Pillar: Executed Price 171The Second Pillar: Dealer Inquiries 173The Third Pillar: Liquidity 174The Fourth Pillar: Ease of Transaction 174Chapter 15 There Are No Roadblocks, Just Detours 177Know What You Own 177Banking Sector 178Go with Your Gut! 179Don’t Take It Personally 181Trapped in Purgatory 182Index 185