Fixed Income Duration & Convexity Analysis
Analyze bond portfolio duration, convexity, and interest rate sensitivity
What You Can Do
You can quantify how interest rate changes will affect your bond holdings through duration and convexity analysis, calculate precise hedge ratios for Treasury futures and other instruments, and stress-test portfolios across multiple yield curve scenarios. This skill handles complex securities including callable bonds and mortgage-backed securities, enabling you to compare different portfolio structures and evaluate positioning against interest rate forecasts.
Features
Compute effective duration for standard bonds, callable bonds, and MBS to measure interest rate sensitivity
Calculate convexity metrics to assess curvature in bond price-yield relationships for large yield movements
Determine dollar value of 1bp yield change for precise hedge sizing and risk quantification
Analyze exposure to specific points on the yield curve (2Y, 5Y, 10Y, 30Y) for granular risk assessment
Calculate optimal notional amounts for Treasury futures, swaptions, and duration-matched instruments
Stress-test portfolios across parallel and non-parallel yield curve shifts (25bp, 50bp, 100bp moves)
Evaluate duration and convexity profiles of different portfolio structures
Compare credit bonds with different embedded options on a duration-adjusted basis
Example Output
Example 1: Duration-Adjusted Hedge Calculation
- Portfolio: $50M in 10Y corporate bonds (effective duration 7.2 years)
- Hedge instrument: 10Y Treasury futures (DV01 $97.50 per contract)
- Required contracts: 37 futures to achieve 90% hedge ratio
- Output: Contract specification, notional hedge amount ($48.9M), residual duration exposure
Example 2: Yield Curve Scenario Analysis
- Current portfolio allocation: 40% 5Y, 35% 10Y, 25% 30Y
- Scenarios: Parallel +50bp, Flattener (10Y +75bp, 30Y +25bp), Steepener
- Output: P&L impact for each scenario, duration-weighted returns, convexity adjustment impacts
Example 3: Callable Bond vs. Straight Bond Comparison
- Bond A: Callable corporate (5% coupon, callable at 102)
- Bond B: Straight Treasury (4% coupon, no options)
- Output: Effective duration differential, negative convexity impact on Bond A, recommended position sizing
What's Included
- SKILL.md: Complete skill instruction file with methodology and use cases
- Duration Calculation Framework: Formulas and step-by-step process for computing effective duration and modified duration
- Convexity Analysis Checklist: Structured approach to calculating and interpreting convexity for different bond types
- Hedge Ratio Optimizer Template: Spreadsheet-ready calculations for sizing Treasury futures and swaps
- Scenario Analysis Workbook: Pre-built yield curve scenarios (parallel shifts, flatteners, steepeners) with P&L templates
Who It's For
- Portfolio managers — Optimize fixed income allocations and manage interest rate risk across bond holdings
- Fixed income traders — Calculate precise hedge ratios and evaluate position P&L across rate scenarios
- Risk managers — Quantify DV01, key rate duration exposures, and stress-test portfolios under adverse rate environments
- Bond analysts — Compare securities on a duration/convexity-adjusted basis and identify relative value
- Pension fund managers — Manage liability matching strategies and duration positioning against long-term obligations
Best For
- Computing duration and convexity for complex bonds (callables, MBS, convertibles)
- Sizing Treasury futures hedges and calculating optimal hedge ratios
- Analyzing barbell vs. bullet portfolio strategies and duration/convexity tradeoffs
- Stress-testing portfolios across Fed rate scenarios and curve shift scenarios
- Comparing credit bonds on a duration-adjusted, risk-parity basis
- Evaluating key rate duration exposures across the entire yield curve
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