Sources of Bond P&L Beyond Carry and Rate Moves

Summary

The interview question asks what can drive a bond’s daily profit and loss after excluding carry, price changes, and interest-rate changes. The responses frame it as a conceptual prompt that tests whether a candidate can identify and organize relevant fixed-income effects, rather than as a question with one exhaustive answer.

Examples include accrued interest and the distinction between clean and dirty prices, convexity, yield-curve shape and rolldown, liquidity effects such as bid-ask spreads, and coupon cash flows. For portfolios containing derivative products, the responses also mention changes in volatility or prepayment curves and in swap spreads. These items are prompts for analysis, not a complete attribution framework; actual contributions depend on the instrument and portfolio, and the brief answers provide no calculation method or quantitative evidence.

Key ideas

• Accrued interest and clean versus dirty pricing can affect reported bond P&L.
• Convexity and curve-shape effects, including rolldown, are potential contributors.
• Liquidity and bid-ask spreads can influence a bond’s mark and realized P&L.
• Coupon cash flows and changes in swap spreads or relevant derivative curves may also matter.
• The interview responses give examples rather than a complete or quantified attribution method.

Tags

# Product Control Fixed Income - Interview Question


# Product Control Fixed Income - Interview Question












This was asked to me in my product control interview. What factors contribute to the daily pnl of a bond, if you exclude daily carry, price change and interest rate change? There would still be a pnl, what does it consist of?

## Answer by vanguard2k (score 1)

https://quant.stackexchange.com/a/37209

It is an interview question. As opposed to finding the one right answer, I suggest you to prove that you have an idea about fixed income.

Discuss and systematically deal with topics like

- accrued interest (clean/dirty price),

- convexity,

- curve shape (rolldown for example),

- liquidity (bid/ask spread)

and what else comes to your mind to prove that all the concepts are there. All of those can result in a change of the P&L of the bond.

## Answer by Pherroz Ansari (score 0)

https://quant.stackexchange.com/a/35910

Cash flows, such as coupon payments.

Change in various curve marks, such as volatility curve if there are derivative products in the portfolio. Not too sure if there is a prepayment curve but if there is, then a change in the prepayment curve.

Changes in swap spreads.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.