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Fixed-Income Attribution

Fixed-income attribution is an analytical process used to evaluate the performance of fixed-income portfolios by identifying the sources of returns. This technique breaks down portfolio returns into components such as interest rate changes, credit spreads, and active management decisions, allowing portfolio managers to understand what drives performance. Fixed-income attribution is essential for assessing whether returns are due to market movements, strategic positioning, or specific investment choices.

Example

A portfolio manager uses fixed-income attribution analysis to determine that most of the portfolio’s outperformance was due to successful credit spread trades rather than overall interest rate movements.

Key points

• Analyzes sources of returns in fixed-income portfolios.

• Breaks down performance into market and management components.

• Essential for understanding the effectiveness of investment strategies.

Quick Answers to Curious Questions

It provides insights into which strategies and market factors contributed to returns, helping managers refine their approach to achieve better performance.

Components include interest rate effects, credit spreads, sector allocation, and security selection, each influencing overall portfolio returns.

It enables managers and investors to differentiate between returns from market conditions and active management, ensuring accurate assessment of investment skills.