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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?

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    $\begingroup$ ?? Cost of funding the position ?? $\endgroup$ – Alex C Feb 5 '17 at 18:06
  • $\begingroup$ What about Trading Profit or "P&L of Bonds bought/sold today".(I am thinking of the portfolio of a Bond Dealer for example). $\endgroup$ – noob2 Feb 6 '17 at 13:43
  • $\begingroup$ does the bond bare credit risk? if so I'd say as time passes, you earn a bit of risk premium from there (due to survival) $\endgroup$ – Will Gu Dec 5 '17 at 0:07
  • $\begingroup$ If the bond is in another curremcy, then you'll hav daily P&L from the exchange rate. $\endgroup$ – Dimitri Vulis Mar 23 at 11:54
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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.

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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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