Level 1 CFA® Exam:
Bond Analysis
When conducting a non-investment bond analysis:
- focus on the issuer’s liquidity and cash flows,
- prepare detailed financial projections,
- analyze debt covenants thoroughly,
- pay special attention to the corporate structure, capital structure, and debt structure,
- apply the equity-like approach.
When conducting a sovereign bond analysis focus on:
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When doing a non-sovereign bond analysis:
- if dealing with general obligation (GO) bonds, focus on employment rate, per capita income, per capita debt, demographics, the tax base, volatility of revenues, etc.
- if dealing with revenue bonds (used to finance specific projects), focus on financial aspects of the investment financed, its expected revenues, cash flows, costs, liquidity, etc.
- Bond analysis will depend on the type of the bond issuer.
- Different areas of the focus will be chosen for non-investment bond analysis, sovereign bond analysis, non-sovereign bond analysis, etc.