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CFM Fixed Income & Credit Analysis Flashcards

6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 CFM Fixed Income & Credit Analysis flashcards as text
  1. What does a Z-spread represent in fixed income analysis?

    Answer: The constant spread added to the entire Treasury spot rate curve to equal a bond's price

    The Z-spread (zero-volatility spread) is added to each point on the spot rate curve to discount a bond's cash flows to its current market price.

  2. What does a flattening yield curve typically signal in fixed income markets?

    Answer: Slowing economic growth or potential recession expectations

    A flattening curve, where short-term rates rise toward long-term rates, often signals market concerns about future economic slowdown.

  3. What is a collateralized debt obligation (CDO)?

    Answer: A structured product that pools debt instruments and issues tranches with different risk/return profiles

    A CDO pools various debt assets (loans, bonds, MBS) and repackages them into tranches ranging from senior (least risky) to equity (most risky).

  4. What is accrued interest on a bond?

    Answer: Interest earned since the last coupon payment that must be paid by the buyer at settlement

    When a bond is purchased between coupon dates, the buyer compensates the seller for interest accrued since the last coupon payment.

  5. How is yield to maturity (YTM) best defined?

    Answer: The single discount rate that equates a bond's cash flows to its current market price

    YTM is the internal rate of return of a bond investment assuming all coupons are reinvested at the same rate until maturity.

  6. What is negative convexity, commonly found in mortgage-backed securities (MBS)?

    Answer: Price gains are smaller than duration predicts when rates fall, due to prepayment risk

    When rates fall, homeowners prepay mortgages, shortening the MBS duration and limiting price appreciation — the opposite of the positive convexity seen in standard bonds.