When deciding on bonds for clients, we take into consideration several different options: Corporate bonds, U.S. government securities including: Fannie Maes from the Federal Home Loan Mortgage Corporation, FHLBs from the Federal Home Loan Banks, securities from the Federal Farm Credit Banks, Ginnie Maes from the Government National Mortgage Association (mortgage-backed securities), and municipal or state general obligation bonds. From these options, we determine an appropriate array of holdings based on the asset allocation chosen to meet each client’s objectives.
When structuring our fixed-income portfolios, we look at two primary factors—credit quality and interest-rate sensitivity. As it pertains to interest-rate sensitivity, the following table exemplifies some of the elements we evaluate:
| Primary Factors That Affect Duration and Portfolio Sensitivity | |
|---|---|
| Term to Maturity |  |
| Coupon Rate | |
| Accrued Interest | |
| Market Yield Level | |
| Sinking Fund Provisions | |
| Call Provisions | |
| The Passage of Time | |
Fixed Income Best Practices