Fixed Income

Online Guide with Free Quizzes

Ace the CFA® 2025 Level II Fixed Income Exam

Elevate your fixed-income expertise with our all-encompassing online guide, perfectly aligned with the 2025 CFA® Level II curriculum.
Delve into yield curve strategies, credit risk modeling, derivatives, and securitized products—all in a focused, vignette-style format. Enhance your understanding further with 10 free quizzes per page, and take your study sessions on the go with our iOS and Android apps.

📘 What’s Inside This Online Guide?

• Complete Coverage of CFA Level II Fixed Income Topics

  • The term structure of interest rates, swap spreads, and benchmark curves
  • Valuing bonds with embedded options, including convertible and callable structures
  • Credit risk analysis: structural vs. reduced-form models, credit default swaps, and more
  • Securitized debt: MBS, CMOs, ABS, and CDOs

• Vignette-Focused Learning

  • Hands-on practice with sample item sets crafted to mimic real exam scenarios
  • Thorough explanations of no-arbitrage valuation, yield measures, and credit spreads
  • Time management tips to handle multi-faceted fixed income vignettes

• 💡 Free Interactive Quizzes

  • Ten diverse questions per page to reinforce key concepts
  • Immediate feedback and elaborated solutions
  • Unlimited attempts—test yourself repeatedly at no cost

• Study Anywhere with Dedicated Apps

  • Seamless iOS and Android support for on-the-go preparation
  • Automated progress syncing between devices
  • Flexible learning designed to fit your schedule

Why Choose This Guide?

• Comprehensive & Current: Aligned with the latest 2025 CFA Institute curriculum
• Exam-Driven Content: Realistic vignettes and item sets prime you for the actual testing experience
• Expert Insights: Developed by finance professionals specializing in fixed income
• Enhanced Retention: Short chapters for easier reading, frequent quizzes, and practical examples

Who Should Use This Guide?

• CFA Level II Aspirants aiming to master advanced fixed income concepts
• Students and educators seeking reliable, exam-adjusted practice materials
• Finance professionals needing deeper knowledge in yield curve analysis, credit risk, and structured products
• Anyone desiring a structured, quiz-focused resource for fixed income proficiency

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Gain an Edge in Fixed Income

From bootstrapping forward rates to managing portfolio duration and analyzing securitized instruments—this guide refines your skills through practice-driven, exam-focused lessons. Combine these lessons with our free quizzes and mobile apps to efficiently prepare for every Fixed Income item set on the CFA® 2025 Level II exam.

Tags: CFA Level II Fixed Income, CFA 2025 fixed income, yield curve strategies, credit default swaps, MBS analysis, item set practice, free quizzes, iOS app, Android app, online study guide

In this section

• Chapter 1: Orientation to Level II Fixed Income
  • Scope of Fixed Income at Level II
    Dive into the expanded coverage of advanced bond valuation, credit analysis, and structured products required for CFA 2025 Level II, Volume 6: Fixed Income.
  • Vignette-Style Exam Format and Tips
    Learn strategies to efficiently tackle the CFA Level II vignette (item set) format. Discover time management tips, common distractors, and how to build your mental formula sheet for successful bond pricing, duration measures, and more.
  • Core Concepts from Level I Review
    Revisit the fundamentals of bond pricing, yields, duration, and more from CFA Level I, laying the groundwork for advanced fixed income analyses at Level II.
  • Building a Study Roadmap
    Discover how to map out your CFA Level II Fixed Income study plan effectively, using spaced repetition, targeted practice sessions, and strategic self-assessment for exam success.
• Chapter 2: Fixed Income Instruments Overview
  • Types of Bonds: Government, Corporate, Securitized
    Explore the core categories of bonds—government, corporate, and securitized—to deepen your understanding of credit risk, liquidity, maturities, and how each instrument fits into a diversified fixed income portfolio.
  • Coupon Structures and Day Count Conventions
    Understand different coupon bond structures, day count conventions, and how they affect accrued interest, pricing, and yield for successful CFA Level II Fixed Income mastery.
  • Floating-Rate Notes and Step-Up Bonds
    Explore how floating-rate notes (FRNs) and step-up bonds function, their valuation nuances, and key risk-return considerations in CFA® Level II fixed income.
  • Vignette Example: Identifying Bond Features
    Learn how to interpret a bond’s key features through a short item-set style scenario, focusing on coupon structure, day count conventions, issuer type, and embedded options.
• Chapter 3: Yield Measures and Bond Pricing Basics
  • Yield to Maturity, Current Yield, and Other Measures
    Dive into key bond yield measures—Yield to Maturity, Current Yield, Yield to Call, and more—to master how each metric affects fixed-income valuation and exam-ready analysis.
  • Price-Yield Relationship and Bond Math
    Explore the inverse relationship between bond prices and yields, learn key bond pricing formulas, and understand how coupon frequency and market yields affect valuation. This comprehensive guide covers discount/premium bonds, duration insights, and practical examples for the CFA® Level II exam.
  • Accrued Interest and Full vs. Clean Price
    Learn the essential differences between clean and full bond prices, plus how accrued interest and day count conventions affect bond valuation and trading in real markets.
  • Practice Vignette: Comparing Yield Metrics
    A comprehensive scenario-driven exercise integrating yield measures, accrued interest, and price-yield relationships to reinforce essential bond pricing concepts.
• Chapter 4: The Term Structure of Interest Rates
  • Spot Rates, Par Rates, Forward Rates
    Explore the foundational concepts of spot, par, and forward rates, and learn how to apply them in real-world fixed-income valuation scenarios.
  • Bootstrapping the Zero-Coupon Curve
    Learn how to derive zero-coupon spot rates step by step from coupon-bearing bonds, ensuring a no-arbitrage framework alongside practical exam tips and common pitfalls.
  • Traditional Theories of the Yield Curve
    Explore the classic explanations for yield curve shapes, including pure expectations, liquidity preference, market segmentation, and preferred habitat theories, and see how each theory influences interpretation and forecasting in real-world bond markets.
  • Item Set: Deriving Forward Rates in a Vignette
    Learn how to derive forward rates in a typical CFA exam-styled item set, linking spot rates to future interest rates with a thorough approach to exam tips and real-world implications.
• Chapter 5: Interest Rate Volatility and Benchmarks
  • Maturity Structure of Yield Volatilities
    Explore how interest rate volatility differs across short-term and long-term maturities, and learn to interpret the volatility term structure in practical investment contexts.
  • Swap Curves and Swap Spreads
    Learn how swap curves function as critical benchmarks for institutional investors, how swap rates are determined and interpreted, and how swap spreads reflect market perceptions of credit, liquidity, and policy risk.
  • LIBOR/SOFR Transition and Market Impacts
    Explore the global shift from LIBOR to SOFR, its rationale, key differences, and the wide-ranging implications for floating-rate notes, syndicated loans, and derivatives markets in the CFA® 2025 Level II context.
  • Vignette Drill: Interpreting Benchmark Shifts
    Explore how to transition from LIBOR to SOFR in practical portfolio scenarios with advanced calculations, real-world volatility considerations, and a full vignette drill for CFA Level II candidates.
• Chapter 6: Active Bond Portfolio Management
  • Rolling Down the Yield Curve
    Explore how rolling down the yield curve can enhance bond portfolio returns by capitalizing on price appreciation in an upward-sloping yield environment.
  • Riding the Yield Curve Strategies
    Explore how riding the yield curve can enhance total returns through capital gains when investing in longer-term bonds, while balancing the risks of yield curve shifts and liquidity constraints.
  • Duration Targeting and Convexity Adjustments
    A thorough exploration of effective duration strategies and convexity considerations for active bond portfolio management, including how to hedge interest rate risk and enhance portfolio value under varying market conditions.
  • Vignette: Yield Curve Trades under Different Forecasts
    Explore scenario-based yield curve trading, including rolling down the curve, riding the curve, and adjusting duration or using derivatives for various forecast outcomes.
• Chapter 7: Arbitrage-Free Valuation Framework
  • Law of One Price and No-Arbitrage Valuation
    Explore how the law of one price lays the groundwork for no-arbitrage pricing, replication strategies, and fixed income valuation.
  • Valuing Zero-Coupon Instruments
    Explore zero-coupon bond valuation through an arbitrage-free lens, covering discounting methods, bootstrapping spot yield curves, and practical applications in fixed income investments.
  • Pathwise vs. Spot Curve Pricing
    Explore the contrasting methods of pathwise and spot curve pricing, understanding how each approach discounts future bond cash flows and captures or omits path-dependent features.
  • Practice Vignette: Constructing Arbitrage-Free Prices
    Learn how to derive missing spot rates, discount factors, and consistent bond prices using no-arbitrage principles. This practice vignette guides you step by step through the bootstrapping process while highlighting potential pitfalls, transaction costs, and real-world complexities.
• Chapter 8: Binomial Interest Rate Tree Models
  • Building and Calibrating the Tree
    Learn how to construct a binomial interest rate tree, select appropriate parameters, and calibrate it so that modeled rates match real-world yield curves and volatility assumptions in an arbitrage-free framework.
  • Backward Induction Valuation Process
    A thorough guide on using backward induction in binomial interest rate trees, detailing step-by-step valuation of fixed income instruments and embedded option securities.
  • Forward Probabilities and Risk-Neutral Approach
    Explore the essential role of risk-neutral probabilities and forward measures in binomial interest rate tree valuation. Learn how these probabilities differ from real-world measures, ensure arbitrage-free pricing, and facilitate forward rate calibration.
  • Sample Item Set: Tree-Based Pricing for Coupon Bonds
    Learn how to price coupon bonds using a binomial interest rate tree, apply backward induction, and understand embedded option valuation in a practical item set format.
• Chapter 9: Monte Carlo Simulation for Fixed Income
  • Forward-Rate Simulation Techniques
    Explore advanced forward-rate simulation methods in fixed income, focusing on modeling interest rate evolution using Monte Carlo. Learn how to structure stochastic processes, calibrate parameters, and generate paths for bond pricing, especially in the Heath-Jarrow-Morton framework.
  • Advantages vs. Binomial Trees
    Discover why Monte Carlo simulation often outperforms binomial tree models in fixed income analysis, including greater modeling flexibility, scalability for high-dimensional problems, and richer statistical outputs.
  • Capturing Path-Dependency in Cash Flows
    Explore how Monte Carlo simulation handles path-dependent cash flows in fixed-income instruments, with examples of prepayment modeling, embedded option triggers, and reinvestment assumptions.
  • Vignette: Sensitivity to Volatility in Simulations
    Explore how changing volatility assumptions in Monte Carlo simulations impacts bond and derivative valuations in fixed income portfolios.
• Chapter 10: Bonds with Embedded Options—Introduction
  • Callable and Putable Bonds
    Explore how embedded call and put features alter bond risk, valuation, and payoff structures, giving issuers and investors unique advantages in shifting interest rate environments.
  • Valuing Straight Bonds vs. Embedded-Option Bonds
    Discover how to value traditional bonds versus those with embedded call and put provisions, exploring discounted cash flow techniques and risk-neutral frameworks to handle changing cash flow structures.
  • Impact of Interest Rate Volatility on Options
    Explore how changing interest rate volatility affects callable and putable bonds, focusing on embedded option value, duration, and convexity.
  • Practice Vignette: Identifying Option Value
    Advanced insights on decomposing embedded-option bond pricing, scenario analysis, and volatility’s impact on callable and putable bonds.
• Chapter 11: Analyzing Callable and Putable Bonds
  • Option-Adjusted Spread (OAS) Computation
    Understand Option-Adjusted Spread (OAS) for callable and putable bonds, how it's calculated, and its role in informed bond valuation and portfolio selection.
  • Effective Duration and One-Sided Durations
    Explore the nuances of effective duration for callable and putable bonds, and learn how one-sided durations capture asymmetric risks when yields move up or down.
  • Negative Convexity in Callable Bonds
    Explore how callable bonds exhibit negative convexity, why it matters for bond valuation, and practical strategies for managing portfolios with embedded call options.
  • Vignette Exercise: Calculating OAS and Effective Duration
    Learn how to determine Option-Adjusted Spread (OAS) for callable and putable bonds and measure effective duration using a scenario-driven, binomial tree approach. This step-by-step guide clarifies each phase of the calculation, highlights key exam tips, and wraps up with a practice quiz.
• Chapter 12: Convertible Bonds and Other Hybrids
  • Conversion Features and Equity Upside
    Delve into the fascinating world of convertible bonds, exploring how embedded equity conversion options can amplify returns and present unique risk considerations for investors.
  • Contingent Convertibles (CoCos)
    A thorough exploration of Contingent Convertibles (CoCos) as Additional Tier 1 capital instruments for banks, focusing on triggers, risk-reward trade-offs, regulatory frameworks, and real-world examples.
  • Arbitrage-Free Valuation of Convertibles
    Explore how to decompose a convertible bond into its bond floor and embedded equity option components, and learn to apply binomial tree, lattice, and Monte Carlo methods for no-arbitrage pricing in various market scenarios.
  • Vignette: Modeling Conversion Scenarios
    Explore a comprehensive, exam-focused scenario for evaluating convertible bonds, including bond floors, conversion triggers, and market conditions.
• Chapter 13: Mortgage-Backed Securities (MBS) Overview
  • Mortgage Pass-Through Basics
    A detailed exploration of how mortgage pass-through securities work, focusing on GSEs, TBA trading, prepayment modeling, and the unique cash flow structures pertinent to the CFA Level II curriculum.
  • Prepayment Risk and Contraction/Extension
    Explore how mortgage prepayments can accelerate (contraction risk) or slow down (extension risk), and learn scenario-based MBS valuation techniques for better risk management.
  • Weighted Average Maturity (WAM) and WAC
    Explore how Weighted Average Maturity (WAM) and Weighted Average Coupon (WAC) define a mortgage pool’s interest rate profile, timing of cash flows, and implications for MBS valuation.
  • Practice Item Set: MBS Cash Flow Projections
    Learn to project MBS cash flows under varying prepayment speeds and macro scenarios, exploring principal, interest, and duration impacts in a vignette-style problem.
• Chapter 14: Collateralized Mortgage Obligations (CMOs)
  • CMO Tranches: Sequential, PAC, Support
    Dive into Sequential-Pay, PAC, and Support tranches in CMOs, exploring structure, cash flows, prepayment risks, and valuation metrics.
  • PAC Collar, Support Bonds, and Extension Risk
    Explore how PAC collars are designed, how support bonds maintain cash flow stability, and the implications of extension risk in CMOs.
  • Valuing CMOs in a Changing Rate Environment
    Gain a comprehensive understanding of how Collateralized Mortgage Obligations (CMOs) are valued when interest rates change. Learn about prepayment modeling, option-adjusted spread, negative convexity, and advanced simulation techniques to better analyze and manage CMO investments.
  • Vignette: Allocating Cash Flows to Tranches
    Explore a practical CMO scenario involving sequential, PAC, and support tranches, step-by-step cash flow allocation, and the impact of varying prepayment speeds on each tranche’s average life. Includes theoretical insights, best practices, examples, and final practice questions.
• Chapter 15: Asset-Backed Securities (ABS) Essentials
  • ABS Structures: Auto Loans, Credit Cards
    Explore the core features, structures, and risk factors of auto loan and credit card ABS, including revolving periods, early amortization triggers, and tranching.
  • Securitization Process and Key Parties
    Explore the securitization lifecycle, roles of key participants, legal considerations, and exam-focused insights on ABS structuring.
  • Credit Enhancement: Internal vs. External
    Explore how structured finance transactions use both internal and external credit enhancement to lower risk in Asset-Backed Securities, with detailed coverage of subordination, overcollateralization, reserve accounts, letters of credit, and more.
  • Item Set: ABS Credit Analysis in a Vignette
    Master effective ABS credit analysis through a realistic item-set vignette. Learn how to evaluate collateral quality, assess coverage ratios, interpret triggers, and apply real-world insights to make well-informed judgments on ABS risk and sustainable cash flows.
• Chapter 16: Commercial Mortgage-Backed Securities (CMBS)
  • CMBS Structures and Call Protection
    Explore the securitization process of commercial mortgages, the role of SPVs and various call protection mechanisms that safeguard CMBS investors against early prepayment risk.
  • Balloon Risk and Prepayment Lockouts
    Learn about the final large principal payments in commercial mortgage-backed securities, why shorter-term maturities are common, and how lockout provisions shape cash flow stability and risk analysis.
  • Analyzing Property-Based Cash Flows
    Explore how property-specific factors, market conditions, and specialized servicing roles affect commercial mortgage-backed securities cash flow analysis. Learn to project NOI, apply cap rates, and stress-test scenarios for robust CMBS evaluations.
  • Vignette: CMBS Features and Underwriting
    Explore a realistic CMBS transaction with multiple properties, tranching, call protection, and underwriting challenges, complete with scenarios and item-set style questions.
• Chapter 17: Collateralized Debt Obligations (CDOs)
  • CDO Types: CLOs, CBOs, and Synthetic CDOs
    A comprehensive look at Collateralized Debt Obligation structures, covering CLOs, CBOs, and Synthetic CDOs, with practical insights on risk distribution, credit enhancement, and real-world examples.
  • Equity, Mezzanine, and Senior Tranches
    A comprehensive explanation of how CDO tranches are structured, focusing on equity, mezzanine, and senior classes, their distinct risk-return profiles, and key mechanics such as subordination and coverage tests.
  • Manager’s Role and Collateral Selection
    Explore the crucial responsibilities of the collateral manager in CDOs, focusing on asset selection, performance monitoring, and coverage tests, as well as best practices and exam tips.
  • Practice Vignette: Evaluating CDO Credit Structure
    Explore a real-world scenario of evaluating CDO credit structures, focusing on overcollateralization and interest coverage ratios, tranche priority, reinvestment risks, and correlation considerations.
• Chapter 18: Introduction to Credit Risk Analysis
  • Expected Exposure, LGD, and Probability of Default
    Learn how to quantify credit risk through Expected Exposure, Loss Given Default, and Probability of Default, and discover their significance in advanced fixed income analysis.
  • Credit Ratings vs. Credit Scores
    Explore the distinctions between institutional credit ratings and individual credit scores, how each is determined, and the significance for investors and portfolio managers.
  • Determining Recovery Rates
    Explore how recovery rates drive loss-given-default calculations, with insights into seniority, collateral, and real-world challenges affecting credit risk analysis.
  • Item Set: Loss Given Default Calculation
    Explore the calculation of Loss Given Default (LGD) in a vignette-style format, including advanced recovery scenarios, partial collateral, seniority structures, and practical credit risk modeling techniques for the CFA® 2025 Level II exam.
• Chapter 19: Structural Credit Risk Models
  • Merton Model Basics
    Discover how the Merton model interprets equity as a call option on a firm's assets, estimating default risk by comparing asset value to debt obligations under a structural framework.
  • Equity as a Call Option on the Firm’s Assets
    Explore how equity holders effectively hold a call option on the value of a firm’s assets in structural credit risk models, including Merton’s framework, key formulas, and real-world considerations.
  • Strengths and Limitations of Structural Models
    Explore the key advantages and drawbacks of structural credit risk models, focusing on the economic rationale, market-based insights, and challenges in capturing real-world complexities.
  • Vignette Scenario: Calculating Distance to Default
    Explore how to implement the Merton model to measure a firm's distance-to-default, estimate default probabilities, and perform structural credit risk analysis.
• Chapter 20: Reduced-Form Credit Risk Models
  • Intensity Models and Default Intensities
    Gain a deep understanding of reduced-form credit risk modeling, focusing on the concept of default intensities, the Poisson process, calibration techniques, and real-world applications for pricing credit-sensitive instruments.
  • Credit Spread Modeling
    A deep dive into how reduced-form credit risk models translate observed market spreads into default intensities, recoveries, and risk premia.
  • Strengths and Limitations of Reduced-Form Approach
    This article provides a thorough exploration of the strengths and limitations of reduced-form models for credit risk, discussing minimal assumptions, ease of calibration, random arrival processes, reliance on market data, scenario analysis, and more.
  • Practice Vignette: Default Probabilities in a Reduced-Form Model
    Explore how to estimate default probabilities for a BBB-rated corporate issuer using a simplified hazard rate model, including adjustment for scenario changes and recovery rate assumptions.
• Chapter 21: Credit Valuation Adjustment (CVA)
  • Definition and Components of CVA
    Learn how Credit Valuation Adjustment (CVA) incorporates counterparty default risk into derivative valuations, covering Expected Exposure, Probability of Default, Loss Given Default, and discounting. Explore key regulatory aspects and real-world applications.
  • Measuring Credit Exposure Over Time
    An in-depth look at how to measure credit exposures, from current exposure to advanced simulation approaches, for accurate CVA computation.
  • Practical Approaches to CVA Hedging
    Explore practical strategies for offsetting counterparty credit risk in derivative transactions through CVA hedging, including single-name CDS, index approaches, and dynamic hedge adjustments.
  • Vignette: Calculating and Interpreting CVA
    Explore a practical CFA® Level II-style scenario on Credit Valuation Adjustment (CVA)—calculating, interpreting, and managing counterparty credit risk in an interest rate swap through netting, collateralization, and sensitivity analysis.
• Chapter 22: Term Structure of Credit Spreads
  • Determinants of Credit Spread Shapes
    Explore the key drivers influencing the shape of credit spread curves, including default risk, liquidity conditions, monetary policy expectations, and sector-specific factors.
  • Rating Transitions and Their Impact
    Explore how credit rating changes can reshape credit spreads, trigger forced selling or buying, and influence portfolio risk management strategies.
  • Credit Curve Investing Strategies
    Learn how to position your bond portfolio across different maturities to capitalize on anticipated changes in credit spreads, using strategies like curve steepeners, curve flatteners, and relative value analysis.
  • Item Set: Shifts in the Term Structure of Credit Risk
    Explore how credit spreads move across different maturities and learn practical exam strategies for analyzing term-structure shifts. This section covers parallel shifts, slope changes, rating transitions, and real-world factors causing credit-curve volatility.
• Chapter 23: Credit Default Swaps (CDS)
  • Single-Name vs. Index CDS Contracts
    In-depth overview of the differences between Single-Name and Index Credit Default Swaps, focusing on structure, liquidity, correlation, roll dates, and hedging strategies in the context of fixed income portfolio management.
  • CDS Mechanics and Settlement Protocols
    Discover how Credit Default Swaps (CDS) function, including the payment structure, credit events, and settlement options. Learn about the ISDA-driven auction process, physical vs. cash settlement, and key considerations like restructuring clauses and cheapest-to-deliver strategies.
  • Pricing and Factors Affecting CDS Spreads
    Explore how credit default swaps (CDS) are priced and the key factors—such as default probability, market conditions, and recovery rates—that drive CDS spreads.
  • Vignette: Navigating CDS in a Portfolio Context
    Discover how to apply credit default swaps (CDS) for hedging or speculative positioning within a bond portfolio, exploring triggers for credit events, settlement methods, and single-name vs. index CDS strategies.
• Chapter 24: Using Derivatives in Fixed Income
  • Forward Rate Agreements (FRAs) and Futures
    Learn the mechanics, uses, and comparative benefits of Forward Rate Agreements and short-term interest rate futures for hedging and speculation in fixed income portfolios.
  • Interest Rate Swaps and Swap Spreads
    Explore how plain vanilla interest rate swaps transform fixed and floating payment streams, learn about swap spreads, and gain insights into managing portfolio risk in OTC and cleared swap markets.
  • Bond Futures and Hedging Techniques
    Learn how portfolio managers use bond futures to hedge interest rate risk, implement tactical yield curve trades, and manage roll risk in a practical yet comprehensive way.
  • Vignette Practice: Hedging a Bond Portfolio
    Explore practical strategies for using derivatives—futures, swaps, and FRAs—to hedge or adjust interest rate exposure in a bond portfolio. Learn step-by-step calculations, hedge ratio derivations, and essential best practices to manage duration and mitigate basis risk.
  • Interest Rate Options (Caps, Floors, Swaptions)
    A comprehensive exploration of caps, floors, and swaptions—essential derivative instruments for advanced interest rate risk management and hedging within fixed income portfolios.
  • Cross-Currency Swaps and Hedging
    A comprehensive exploration of converting foreign-currency bond cash flows and managing multi-currency exposures using cross-currency swaps, including practical examples, diagrams, risk considerations, and best practices.
• Chapter 25: Measuring Interest Rate Risk
  • Macaulay Duration vs. Modified Duration
    An in-depth exploration of Macaulay and Modified Duration, focusing on bond price sensitivity, real-world applications, and advanced CFA exam insights.
  • Key Rate Durations and Shaping Risk
    A detailed exploration of how partial durations isolate yield curve exposure at specific maturities, helping CFA® Level II candidates shape and manage risk effectively.
  • Convexity Effects and Portfolio Rebalancing
    Explore how convexity influences bond pricing beyond duration and learn practical ways to rebalance portfolios to manage convexity risk effectively.
  • Item Set: Duration-Based Risk Calculations
    Explore practical steps to determine portfolio duration using vignette data, focusing on partial durations, yield shocks, and embedded options for CFA 2025 Level II.
• Chapter 26: Managing Yield Curve and Spread Risks
  • Parallel Shifts vs. Twists vs. Curvature Changes
    Explore how changes in the yield curve’s level, slope, and curvature affect bond portfolios, hedging strategies, and valuation.
  • Bullet vs. Barbell Strategies
    A comprehensive look at Bullet and Barbell bond portfolio strategies for managing yield curve and spread risks, with practical insights, examples, and advanced considerations.
  • Hedging with Swaps and Other Instruments
    Discover strategies to manage yield curve and spread risk using interest rate swaps, futures, forwards, swaptions, and more advanced structures. Learn how to systematically identify, measure, and hedge bond portfolio exposures.
  • Vignette: Multi-Factor Risk Management
    Explore multi-factor risk management in a yield-curve context, focusing on partial parallel shifts, slope changes, credit spread risk, scenario analysis, and derivative-based hedging solutions.
• Chapter 27: Fixed Income Portfolio Construction
  • Benchmark Selection and Tracking Error
    Explore how to choose an appropriate fixed income benchmark and manage tracking error to align portfolio returns with investment objectives while navigating credit risk, duration positioning, and sector exposure complexities.
  • Active vs. Passive Bond Strategies
    Explore the key differences between passive index-tracking bond management and active alpha-seeking strategies, along with the core-satellite approach, factor-based methods, and real-world examples for fixed income portfolios.
  • Sector Rotation and Security Selection
    A deep dive into actively rotating among fixed income market sectors and selecting individual securities for optimal risk-return, leveraging economic forecasts and credit research.
  • Vignette: Portfolio Construction under Constraints
    Explore a real-world fixed income portfolio scenario with regulatory and ESG constraints, liability-driven investing considerations, and benchmark requirements. Learn how to propose allocations, manage duration, and justify sector deviations in an exam-style vignette.
• Chapter 28: Performance Evaluation in Fixed Income
  • Return Attribution: Duration, Spread, and Currency
    Explore how to dissect fixed income performance into duration, spread, and currency components, while leveraging effective hedging strategies and top-down vs. bottom-up attribution methods.
  • Risk-Adjusted Performance Metrics
    Explore how to evaluate fixed income portfolios using risk-adjusted metrics like Sharpe Ratio, Sortino Ratio, Information Ratio, and Jensen’s Alpha, with practical tips for ex-ante and ex-post analysis, factor-based approaches, and liquidity considerations.
  • Decomposing Excess Return over Benchmark
    Explore how to break down portfolio performance into key drivers of outperformance or underperformance versus a benchmark, focusing on yield curve, sector allocation, credit selection, currency, and more.
  • Item Set: Interpreting Performance Attribution Data
    Learn how to interpret performance attribution exhibits in fixed income portfolios, focusing on key rate duration, sector contributions, currency impacts, and the influence of derivatives on returns.
  • Additional Considerations in Performance Evaluation
    Explore crucial factors in fixed-income performance evaluation, including multi-currency approaches, GIPS compliance, leverage, operational constraints, liquidity, taxes, and intangible qualitative elements for comprehensive portfolio assessment.
• Chapter 29: Global Bonds and Currency Risk
  • Currency Exposure and Hedging Techniques
    Discover how currency fluctuations affect global bond investments, plus practical hedging strategies and operational details to manage FX risk in your fixed income portfolio.
  • Local-Currency vs. Hard-Currency Debt
    Explore local-currency vs. hard-currency debt in global fixed income, focusing on currency risk, credit and sovereign risk, and liquidity considerations for CFA Level II.
  • Emerging Market Fixed Income Risks
    A deep dive into the unique risk factors, macro influences, and hedging tactics that define investing in emerging market fixed income assets.
  • Vignette: FX Impact on Global Bond Portfolios
    Explore how currency fluctuations can amplify or reduce returns in global bond investments through a practical vignette, including data analysis, hedged vs. unhedged scenarios, and stress-testing techniques.
• Chapter 30: Special Topics—Inflation-Linked Bonds
  • TIPS, Inflation Caps/Floors
    Detailed exploration of Treasury Inflation-Protected Securities (TIPS) and inflation caps/floors, their mechanics, and strategic portfolio applications for CFA Level II candidates.
  • Indexing Mechanisms and Break-Even Inflation
    Discover how government inflation data shapes inflation-linked bonds, the concept of break-even inflation, and the factors influencing yield spreads and market expectations.
  • Valuation Adjustments in Inflation-Linked Securities
    Explore how real discount rates, projected cash flows, and embedded deflation floors shape the valuation of inflation-linked bonds, alongside advanced topics like OAS and real option-adjusted spreads.
  • Practice Vignette: Analyzing TIPS Yields
    Explore a practical scenario of comparing Treasury Inflation-Protected Securities (TIPS) and nominal Treasuries, focusing on break-even inflation calculations, real yield analysis, and key exam strategies.
• Chapter 31: ESG Considerations in Fixed Income
  • Green Bonds, Social Bonds, and Sustainability-Linked Debt
    Explore how issuers and investors leverage Green Bonds, Social Bonds, and Sustainability-Linked Bonds to fund impactful environmental and social initiatives, guided by industry frameworks and enhanced reporting requirements.
  • Incorporating ESG Metrics into Credit Analysis
    Discover how Environmental, Social, and Governance factors can influence creditworthiness and learn practical steps to integrate ESG metrics into bond analysis.
  • Impact on Spreads and Scoring
    Explore how ESG factors influence yield spreads, bond valuations, and scoring methodologies in fixed income. Understand halo effects, potential ESG premiums, market supply-demand dynamics, and the role of controversy scores for comprehensive ESG integration.
  • Vignette Exercise: ESG Factors in Bond Selection
    Explore how ESG integration shapes bond selection, focusing on sustainability-linked debt structures, issuer track records, and regulatory shifts in a practical vignette-based scenario.
• Chapter 32: Final Review and Mock Vignettes
  • Comprehensive Mixed-Topic Exercises
    Sharpen your mastery of Fixed Income concepts with advanced, vignette-style practice problems, spanning yield calculations, credit risk, structured products, and more.
  • Cross-Referencing Duration, Credit, and Optionality
    Learn how to integrate interest rate risk, credit risk, and embedded options for comprehensive fixed income analysis using effective duration, credit spreads, and option-adjusted approaches.
  • Time Management and Test-Taking Strategies
    Master essential exam-day strategies, including how to read vignettes, allocate time wisely, and maintain composure under pressure for CFA® 2025 Level II Fixed Income.
  • Conclusion and Next Steps
    Wrap up core fixed income concepts—from yield mathematics and structured finance to advanced credit risk—and discover key study strategies, final-week plans, and resources for success on exam day.
  • Additional Resources and Practice Tools
    Explore official CFA Institute resources, third-party practice tools, online forums, specialized calculators, and ESG-focused case studies to enhance your CFA Level II Fixed Income study experience.