BUY 7-YEAR HIGH COUPON PREPAYMENTS AND WILL HAVE TO BE MORTGAGE PAS...

3. Buy 7-year high coupon prepayments and will have to be mortgage pass-through reinvested into lower interest bearing bonds; Sell 7-year low securities when interest rates decline. Negativecoupon mortgage pass-through bonds. 2008 Level III Guideline Answers Morning Session – Page 19 of 40 Question: 5 Topic: Portfolio Management – Fixed Income Investments Minutes: 13 PART B Sector rotation occurs when an investment manager shifts the portfolio from a sector that is expected to underperform to one that is expected to outperform. Sector rotation trading strategies do not perform well in the corporate bond market, as compared to the equity market, because the corporate bond market generally has less liquidity than the equity market and higher trading costs than the equity market. Morning Session – Page 20 of 40 Question: 6 Topic: Portfolio Management – Alternative Investments Minutes: 11 Reading References: