Thomas Matthew Adams (tma2134)

FIXED INCOME PORTFOLIO MANAGEMENT PROJECT

Maturity

Distribution of Investments by Country

Distribution by Industry

Initial Portfolio Set-Up Company Name Notional CUSIP/S

AMAZON.COM INC $25,000,000.00 023135AH9

AMERICAN AIRLINES GROUP $10,000,000.00 02376RAB8

AT&T INC $10,000,000.00 00206RAW2

BARCLAYS BANK PLC $25,000,000.00 06739FGF2

BLACKROCK INC $45,000,000.0009247XAL5/09247XAE1

BOEING CO $25,000,000.00 097023AW5

CANADA GOVERNMENT $20,000,000.00 135087 E42

CISCO SYSTEMS INC $25,000,000.00 17275RAE2

EXXON MOBIL CORPORATION $25,000,000.00 30231GAL6

GENERAL ELECTRIC CO $20,000,000.00 369604BD4

JOHNSON & JOHNSON $20,000,000.00 478160AU8

JPN BANK FOR INT'L COOP $25,000,000.00 471048AP3

KFW $25,000,000.00 UV4264304

KINGDOM OF SPAIN $10,000,000.00 EJ5656909

LLOYDS BANK PLC $25,000,000.00 53944VAD1

MITSUBISHI UFJ LEASE&FIN $25,000,000.00 EK7440416

PROVINCE OF ALBERTA $10,000,000.00 01306GAB9

SVENSKA HANDELSBANKEN AB $25,000,000.00 86960BAA0

TOTAL CAPITAL INTL SA $25,000,000.00 89153VAL3

TOYOTA MOTOR CREDIT CORP $10,000,000.00 89236TCP8

TREASURY BILL $20,000,000.00912796FV6/912796HA0

UBS AG STAMFORD CT $20,000,000.00 90261XHK1

Distribution by Industry & Sector

Portfolio LimitsCompany Name Notional ($million) Rating Type

AMAZON.COM INC 25 AA- CorporateAMERICAN AIRLINES GROUP 10 B+ CorporateAT&T INC 10 BBB+ CorporateBARCLAYS BANK PLC 25 A- FinancialBLACKROCK INC 45 AA- FinancialBOEING CO 25 A CorporateCANADA GOVERNMENT 20 AAA GovernmentCISCO SYSTEMS INC 25 AA- CorporateEXXON MOBIL CORPORATION 25 AAA CorporateGENERAL ELECTRIC CO 20 AA+ CorporateJOHNSON & JOHNSON 20 AAA CorporateJPN BANK FOR INT'L COOP 25 A+ GovernmentKFW 25 AAA FinancialKINGDOM OF SPAIN 10 BBB GovernmentLLOYDS BANK PLC 25 A FinancialMITSUBISHI UFJ LEASE&FIN 25 A CorporatePROVINCE OF ALBERTA 10 AAA GovernmentSVENSKA HANDELSBANKEN AB 25 AA- FinancialTOTAL CAPITAL INTL SA 25 AA- CorporateTOYOTA MOTOR CREDIT CORP 10 AA- CorporateTREASURY BILL 20 AAA GovernmentUBS AG STAMFORD CT 20 A Financial

P&L 1: 09/21/15

P&L 2: 10/01/15

USIN

G THE PITCHBOO

K TEMPLATE

Rebalance 1

Locked in profit/loss

Action Taken ReasonsGoing to sell Lloyds Bank PLC Looking at the sector pie chart shows we have too high of an exposure to the financial sector.

Going to sell KFW For the same reasons as Lloyds but also to lock in a large profit.

Going to buy Coca-cola (same notional as Lloyds) More diversification and good rating (AA – keeps us within the limits)

Going to buy Walt Disney (same notional as KFW) Diversification (previously had no bonds in the media sector) and credible company (A)

Going to short two (long maturity) treasuries Create a (somewhat unbalanced) steepener position with previously bought T-bills in expectation that the FED will not raise rates.Hedge against interest rate risk.

Action Notional Locked in profit/loss

Previoust Funds $30,000,000 0

Sold Lloyds $10,000,000 $31,078.66

Sold KFW $10,000,000 $319,840.28

Bought Coca-cola -$10,000,000 $0

Bought Walt Disney -$10,000,000 $0

Shorted 2 treasuries $100,000,000 $0

Total $30,000,000 (or $130,000,000 with treasuries)

$350,918.94

Distribution by Industry

P&L 3: 10/09/15

Duration, DV01 and Convexity

Limit Check

Company Name Notiona

l

Rating Type

AMAZON.COM INC 25000000 AA- Corporate

AMERICAN AIRLINES GROUP 10000000 B+ CorporateAT&T INC 10000000 BBB+ CorporateBARCLAYS BANK PLC 25000000 A- FinancialBLACKROCK INC 20000000 AA- FinancialBLACKROCK INC 25000000 AA- FinancialBOEING CO 25000000 A Corporate

CANADA GOVERNMENT 20000000 AAA GovernmentCISCO SYSTEMS INC 25000000 AA- CorporateCOCA-COLA CO/THE 25000000 AA CorporateEXXON MOBIL CORPORATION 25000000 AAA CorporateGENERAL ELECTRIC CO 20000000 AA+ CorporateJOHNSON & JOHNSON 20000000 AAA Corporate

JPN BANK FOR INT'L COOP 25000000 A+ GovernmentKINGDOM OF SPAIN 10000000 BBB+ Government

MITSUBISHI UFJ LEASE&FIN 25000000 A FinancialPROVINCE OF ALBERTA 10000000 AAA GovernmentSVENSKA HANDELSBANKEN AB 25000000 AA- FinancialTOTAL CAPITAL INTL SA 25000000 AA- CorporateTOYOTA MOTOR CREDIT CORP 10000000 AA- CorporateTREASURY BILL 10000000 - GovernmentTREASURY BILL 10000000 - GovernmentUBS AG STAMFORD CT 20000000 A Financial

WALT DISNEY COMPANY/THE 25000000 A Corporate

Here we can see that the DV01 (including the shorted treasuries) is within the 100,000 limit. However, $94,727.22 is still too high – we are exposed to a movement of almost $100,000 for each basis point change in the yield. It is also dangerous to be this close since the DV01s could shift week-by-week and go over the limit. This, therefore, needs to be hedged. The weighted average convexity is 0.2172 which is arguably negligible – without the shorted treasuries the weighted average convexity ~ 0.6 which would potentially need to be hedged because of the systematic risk exposure.

USIN

G THE PITCHBOO

K TEMPLATE

Rebalance 2

Locked in profit/loss

Action Taken ReasonsGoing to sell Blackrock ‘09247XAL5’ I am still heavily weighted in the financial sector so I should sell more banks (and I have double Blackrock)

Going to sell JPN Bank JPN bank has very long maturity so I am selling it to reduce the DV01.

Going to sell Boeing I am predicting the oil market’s decline to have a negative effect on Boeing and the energy sector.

Going to sell Total Capital ‘89153VAL3’ Same reason as above.

Action Notional Locked in profit/loss

Previous Funds $30,000,000 $350,918.94

Sold Blackrock $20,000,000 $182,693.55

Sold JPN bank $25,000,000 $54,387.10

Sold Boeing $25,000,000 $108,879.03

Sold Total Capital $25,000,000 $307,643.15

Total $125,000,000 (or $225,000,000 with treasuries)

$1,004,521.77

Distribution by Maturity

2016 2017 2018 2019 2020 2021 20220

20000000

40000000

60000000

80000000

100000000

120000000

USSZSWSPJNENCA

DV01 after selling all these long-maturity bonds falls drastically down to ~30,000

Current amount invested: $375MM

P&L 4: 10/23/15

P&L 5: 11/02/15

Hedges (since inception) on P&L 5

Hedges Details DV01/CS01 Total DV01 (with bonds) (should be almost 0)

P&L P&L + bonds

Swap 1 Pay fixed 5 year, 50MM notional -23,873 -93,161.05

Swap 2 Pay fixed 3 year 30MM notional -8,933 -4,976 -42,246.29 1,631,301

5-year T-note futures Short 25MM FVZ5 (250 contracts) -12,376 202,148

10-year T-note futures Short 12MM TYZ5 (120 contracts) -9,635 5,818 137,813 2,106,669

Eurodollars Basket futures up to EDZ8 -30,319.14 2,319.14 144,946 1,911,654.31

P&L 6: 11/11/15

P&L 7: 11/17/15

Hedges (since inception) on Final P&L

Hedges Details DV01 Total DV01 (with bonds) P&L P&L + bonds

Swap 1 Pay fixed 5 year, 50MM notional -24,819.41 992,642

Swap 2 Pay fixed 3 year 30MM notional -5,842.01 -5,426.24 -1,408 1,914,095

5-year T-note futures Short 25MM FVZ5 (250 contracts) -12,350 81,055

10-year T-note futures Short 12MM TYZ5 (120 contracts) -9,340 3,535 27,188 1,028,288

Eurodollars Basket futures up to EDZ8 -33,647 -8,412 -236,290 683,255.49

FINAL AN

ALYSISHedges Final P&LHedges Summary

• Swaps performed the best (could have made almost $3MM if I had hedged with swaps since inception)

• Eurodollar Futures performed the worst.

• Treasury futures had a marginally positive profit.

Evaluation

No extra

hedge

sSw

aps

Futures

Eurodollar

s

(with

out shorting t

reasurie

s)

-2000000.00

-1000000.00

0.00

1000000.00

2000000.00

3000000.00

4000000.00

Total Mark-to-Market

Accrual and Locked-In Profits

Total

$ m

illio

ns

What would I have done differently?- Allocate bonds less haphazardly. - Lock-in the profits of my shorted treasuries and open up the opposite position

(flattener) in anticipation of the Fed raising rates.