The Yield Curve Kink Decision - Case Study Example

The past last seven years of operation the company has been outstanding as revealed by its ability to attract new clients in that same period it lost two small pension accounts that is worth $ 10million while gaining a whopping $400 million in new pension business. The investment style is summed up by a pension consultant as 20% pure interest rate anticipation and 80% quantitative strategies based on values. The company anticipates trying to predict whether the interest rate will rise or fall.

The periods when the interest rate reaches volatile state are rare, but when it does like in a period between December 1994 and July 1995, then a timing mode was engaged because GBA already expected a fall in interest rates.AT such scenarios a barbell strategy was employed where other bond are retained with the bench mark or entering a period long dated trip bonds. The system created a system of long dated strips and a shorter duration bond that form a barbell. Barbell is an investment strategy mostly employed in fixed type of investment that comprises a combination of short term and long term bonds.

The term barbell is used here to reflect the both end loading the system look to be experiencing. Therefore in a nutshell, barbell tries to exploit the best of both end of situation hence it combine the high and the low risk assets to influence for the best outcome. However during the period the interest rate is stable, then their family gets in and creates a management for portfolio’s that ranges for a 1.5 year period and are standard income benchmark which most clients are awarded unless the request differs.

Most or all of the GBA invested strategies on computer models and quantitative models which compare the bond selling price to the price as determined by GBA.GBA has its own analysis technique regarded as proprietary model which has parameter’s close to fifty with 20 of it being critical checking points and that help GBA