Analysis of Debt Securities II: Price Volatility and Investment Strategies
Bond price volatility, duration, convexity, and fixed-income strategy choices.
This chapter explains why bond prices move, how duration and convexity measure that sensitivity, which fixed-income strategies can manage volatility, and how advisors monitor volatility over time. It builds directly on the valuation and yield-curve concepts introduced in the previous chapter.
For exam purposes, Chapter 11 is both analytical and practical. Students should be able to connect interest-rate changes to bond prices, distinguish duration from maturity, match a strategy such as laddering or immunization to a client objective, and identify which monitoring tools matter when market conditions change.
What This Chapter Covers
the main drivers of bond price volatility
duration, effective duration, and convexity
fixed-income strategies used to manage or position interest-rate risk
scenario analysis, stress testing, rebalancing, and ongoing monitoring
How To Study This Chapter
Read the pages in sequence. Page 11.1 explains why bond prices move. Page 11.2 introduces the measurement tools used to estimate that price sensitivity. Page 11.3 then shows how strategy choices are built around those tools. Page 11.4 focuses on monitoring, stress testing, and rebalancing once a portfolio is in place.
Exam Focus
Strong answers in this chapter usually:
explain the inverse relationship between bond prices and yields clearly
distinguish maturity, duration, effective duration, and convexity
match the strategy to the objective rather than describing strategies mechanically
identify what should be monitored when the rate, credit, or liquidity environment changes
Learn what drives bond price volatility, how interest-rate changes affect debt prices, and why maturity, coupon, credit, and liquidity all matter in CSI IMT.