Fixed income is hard

K

krokodilizm

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Anyone else find fixed income most challenging topic in L2? I mean swaps, pension accounting etc are also tough but they require straightforward application of the formulas. This one is tough to conceptualize and the questions are the most difficult.
 
I do. It’s probably my weakest topic. I don’t know why but I really struggle with the term structure concepts. Given the extra exam weight that was added to FI this year I have to give it a lot more attention.
 
JayWill wrote:
I do. It’s probably my weakest topic. I don’t know why but I really struggle with the term structure concepts. Given the extra exam weight that was added to FI this year I have to give it a lot more attention.
Click to expand...
That, plus the spreads, plus the binomial tree for embedded options and of course the duration; The fact that it is called duration but it is not a measure of time is the greatest mystery.
 
I actually didn’t do any problem solving for FI . but we covered all the topics and I found it easier than level 1.
less formulas to memorise and only a few applications to learn once you get around doing some problem solving.
 
krokodilizm wrote:
JayWill wrote:
I do. It’s probably my weakest topic. I don’t know why but I really struggle with the term structure concepts. Given the extra exam weight that was added to FI this year I have to give it a lot more attention.
Click to expand...
That, plus the spreads, plus the binomial tree for embedded options and of course the duration; The fact that it is called duration but it is not a measure of time is the greatest mystery.
Click to expand...
Oddly enough, I find the process of working through a binomial tree with emedded options fairly straightforward, and had that down pretty well for the exam last year. It’s the deeper interest rate and yield curve concepts that I have trouble wrapping my head around, and I think having a strong conceptual understanding is key for the exam.
I’m preparing for the liklihood that FI will be with 15% of the exam this year so I’ll be doing everything I can to get as strong as possible in it.
 
I find the questions are not too terrible, with practice. The binomial trees make sense, though i need a cheat sheet handy to remember how to make them.
But I agree – it’s the only topic so far where I cannot quite picture what the heck is happening in the “real world”. I’ve watched a tonne of videos on par curves, yield curves, etc. Usually, getting good enough at the EOC and blue box questions makes the “real world” meaning come to life … eventually.
I need like the Steven Hawking of bonds to team up with the Far Side guy and make a bunch of comics about convexity.
 
Fixed Income was challenging to me in a first half, too. I was pretty sure that I did not solve it well and was supprised by >70 % sucess in this area. I will apply special attention again on this topic and hope the same outcome.
 
Fixed income was one of my better topics so far. I remember swaps being a pain to understand on L1, also convexity, but luckily both of those topics stuck with me. I’ve always been interested in calls, puts, and moving money through time, so the binomial trees were really fun IMO.
I struggle most with quant and Econ. None of it is intuitive to me, but I can figure out the calculations.
 
biuku wrote:
I need like the Steven Hawking of bonds to team up with the Far Side guy and make a bunch of comics about convexity.
Click to expand...
You’re thinking of Jeff Gundlach… or Bill Gross. Or Matt Tucker from BlackRock.
 
krokodilizm wrote:
That, plus the spreads, plus the binomial tree for embedded options and of course the duration; The fact that it is called duration but it is not a measure of time is the greatest mystery.
Click to expand...
Macaulay duration is 100% a measure of time. It is the money weighted average of cash flows, and is measured in years to show this.
Modified duration is the more practical application of this and shows the bonds sensitivity to interest rate changes, but that is why you use Macaulay duration to calculate duration gap (as both Macaulay duration & investors time horizon are measured in years)
 
Note that although CFA Institute has decided to drop the units from the curriculum, all durations (Macaulay, modified, effective, spread, key rate, whatever) have units of years.
 
You must log in or register to reply here.
Back
Top