Financial Risk Manager Part 1
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A fixed-income analyst is decomposing the profit and loss (P&L) of a bond over the past 6 months. The bond has a 2% coupon rate, paid semi-annually, and had exactly 2 years remaining until maturity at the start of the 6-month period. Relevant information about the bond and market rates (semi-annually compounded) is shown below:
| Beginning | Ending | |
|---|---|---|
| Bond price (SGD) | 100.35 | 101.24 |
| Bond spread (bps) | 30 | 20 |
| Forward rates (periods in years) | Beginning | Ending |
|---|---|---|
| 0 – 0.5 | 0.8% | 0.7% |
| 0.5 – 1 | 1.4% | 1.0% |
| 1 – 1.5 | 1.8% | 1.2% |
| 1.5 – 2 | 2.1% | 2.0% |
The analyst has calculated the bond's carry roll-down, and under the forward rate assumption made for the purpose of that calculation, the ending value of the bond is SGD 100.55. Given this information, what is the component of the bond's P&L attributable to the change in rates over the 6-month period?