BAFI3273 Money and Debt Markets Assessment 3 Semester 01 2025 | RMIT

BAFI3273 Overview 

The assignment requires students to form a group of 3 – 5 students, participate in the trading simulation and provide a written professional report and a reflection on the experience of developing and executing a portfolio and trading strategy. The purpose of this assessment is to build and foster debt market portfolio management skills and your commercial report writing capability to prepare a formal investment brief for the Head of Debt of a  Fund Management Company. The report will provide the Manager (and the Trustees) with the necessary information, presented in a logical, factual manner, for them to make informed business decisions. The assessment is also designed to demonstrate students' ability to work in a team, take responsibility for their actions and reflect on the immersive and experiential process of the investment exercise.

Instructions 

• This is a Group assignment.
• The maximum word limit for this assignment is 3,000 words + 10% (3,300 words). The word count includes everything except the reference list and appendix. For every 100 words in excess, you will receive a deduction of 3 marks. Please note that using/attempting to use any tricks to reduce word count or gain academic advantages is considered academic misconduct. 
• The assignment will be marked out of a total of 100 marks and will count towards 40% of the total marks for this Course.
• Late work: A penalty of 10% of the total possible mark (of the task) per day will apply to a late submission. It means that a penalty of 0.42% of the total possible mark (of the task) per hour will apply to a late submission. The unit for calculating late penalties is 'hour'. Any late submission received after the designated deadline, whether by 1 second or up to one hour, will be treated as a complete one-hour late submission, resulting in a penalty of 0.42% of the total possible mark. Weekend days (Saturday and Sunday) are considered when counting total late days for electronic submissions.
• The students have to complete the Course’s Contribution Form (Excel file) and submit it together with the report on Canvas. The final mark of individual students will be given based on the reported contribution form.

Research 

For this assignment, you must research and write a report based on the tasks outlined in this assessment detail.  Your written report must include the following components: 

• A Title Page for the report.  
• An Executive Summary (typically 1/2 page at most)
• A Table of Contents.
• A very brief introduction that discusses the purpose of the report, the report structure (which should reflect the scope of work performed) and any limitations.
• The body of the report includes the outcomes of the research and analysis.
• A conclusion that summarises the analysis and findings.  
• Appendices for detailed and/or large tables and figures, including Portfolio Manager Reports, and
• A reference list. 

The body of the report must consist of three parts:

• Part 1 – Bond duration and convexity
• Part 2 – Immunisation: Cashflow matching portfolio management
• Part 3 – A future yield curve scenario 

You will have to research and analyse relevant information from internet sources and databases for key resources, including industry reports, Refinitive Eikon and the RMIT Library. You are expected to source your information and relevant statistics from reputable sources. Any information included from other sources must be appropriately referenced using the Harvard referencing style. For information regarding Harvard referencing style, please refer to Easy Cite.

Tasks BAFI3273

Part 1 – Bond duration and convexity (max 35 marks) 

You are required to collect the necessary data, including bond price, yield to maturity, coupon rate, and time to maturity, of two given government bonds from Workspace or other reliable sources.  Take the screenshots of the bond characteristics and calculate the Macaulay duration and convexity of the given bonds. Interpret the meaning of duration and convexity values from your calculations.  

Assume that the interest rates rise by 0.5%, how would this impact the given bonds’ price? Based on your calculations and analysis, provide recommendations for investors on which bond they should choose in the current market conditions. Justify your recommendation concerning the bond's Macaulay duration and convexity.  

Note: All calculations in Part 1 must be done using MS Excel. Please include Excel worksheets for Part 1 in your submission (use the + Add another file function).  

Group allocation for government bonds: 

• Groups with 3 members: US 10Y Govt Bond and China 10Y Govt Bond 
• Groups with 4 members: AU 10Y Govt Bond and Singapore 10Y Govt Bond
• Groups with 5 members: Netherlands 10Y Govt Bond and UK 10Y Govt Bond  

Part 2 – Immunisation: Cashflow matching portfolio management (max 20 marks) 

Construct a bond portfolio using a cashflow matching portfolio management approach. This activity was undertaken in the Week 11 workshop. 

1. Explain your trading strategy to achieve the portfolio objectives 
2. Explain the transactions you made, including: 

• How did you decide the type and quantity of bonds that you bought?
• How did you decide or choose the quotation for your trading?
• What are the key learnings in executing your trading strategy?  

Individual reflection (max 10 marks) 

Please submit your report separately in Canvas. Maximum 250 words for each student. Words in this part will not be included in the total words of the report. You are required to summarise your role (as an individual team member) in the trading session and reflect on what you have learnt from the session. You should describe the challenges and your solutions to any difficulties you faced in achieving your objectives.  

Note: The report of Part 2 should include at a minimum: 

All bond price screenshots from Refinitiv Eikon (In the appendix) from Week 11. 

The ‘3. Liability and Asset Chart from the Bond Portfolio –  Cashflow Matching Immunisation.xlsx Excel (In appendix and/or body of your assignment) from the Week 11 workshop. 

Appropriate screenshots of the details of the Assets purchased in the portfolio (In the appendix) from Week 11. 

Important note of participation: Each student’s participation during the face-to-face in-class session and individual reflection will be evaluated in the marking rubric (max 5 marks) and the overall mark of the student’s assignment (based on Group Contribution Statement).

Part 3 – A future yield curve scenario (max 35 marks)                                            

Using your knowledge of the determinants of interest rates to forecast future yield curves for United States (US)  Government Bonds based on the dates provided below. Your forecasts should be grounded in a qualitative assessment of the projected macroeconomic environment. Following this, discuss the key issues for bond portfolio management arising from the yield curve scenarios you have developed. Your report should include a clear description and justification for all assumptions applied throughout the analysis. 

The dates for the yield curve forecasts are: 

• June 2025 (or the relevant date on which you complete this assignment);
• 30 September 2025, and
• 31 December 2025  

Your analysis should include: 

• A yield curve at 31 December 2024 for comparison purposes.
• A description of the shape of the yield curve at each date.
• Appropriate use of diagrams and charts to illustrate your forecasts and analysis

Guidance: Your analysis of the macroeconomic context at the dates for the yield curve forecasts will be shaped by: 

• The expectation for the level of the cash rate.
• Inflation as measured by the US  Consumer Price Index (you may also consider the impact of inflation in other markets);
• Inflation expectations;
• Employment and Unemployment;
• Gross Domestic Product;
• Foreign exchange rates; and
• Any other relevant indicator. 

Note: You are allowed to research and utilise external sources for forecasts of key economic indicators and interest rates.