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    1. 1. Roger O. Nieves, CFA Mr. Nieves is a Vice President and account manager, with a focus on institutional client servicing. He joined the firm in 2001. Previously, Mr. Nieves was a manager of financial analysis at Nissan Motor Corporation and a summer associate at Goldman Sachs. Mr. Nieves holds a bachelor’s degree in economics from the University of California, Irvine, an MBA from Washington University, St. Louis and a master’s degree from the Kennedy School of Government at Harvard University. This presentation is distributed for educational purposes only. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660. Copyright PIMCO 2004. Seminario Inversiones AMAFORE September 23, 2004
    2. 2. Agenda <ul><li>Introduction to the Fixed Income Markets </li></ul><ul><li>Risk Management </li></ul><ul><li>Diversification Through Global Bonds </li></ul><ul><li>Practical Aspects of Fixed Income Investment Management </li></ul><ul><li>Investment Process and Strategy </li></ul>
    3. 3. Global Bond Universe * Includes those markets from the Asia and Pacific, Latin America / Caribbean, Emerging Europe and Middle East and Africa region ** Based on total face value of index-qualifying fixed income securities by currency SOURCE: Merrill Lynch Global Bond Indices Total Size = $44.8 Trillion As of December 31, 2003 Size of the World’s Bond Market**
    4. 4. Composition of the U.S. Bond Market Continues to Change <ul><li>Mortgage Backed Securities are the largest sector of the U.S. bond market </li></ul><ul><li>Non-Treasury markets have grown dramatically </li></ul>SOURCE : Bond Market Association U.S. Bond Market Sector Growth $ Billions As of December 31, 2003 Total Market Size: $22 Trillion USD
    5. 5. The Risks of Bond Ownership <ul><li>Bond holders are paid, in the form of coupon and maturity payments, to assume these risks </li></ul><ul><ul><li>Rule of thumb: The greater the risk, the higher the yield </li></ul></ul>1. Interest Rate Risk 2. Volatility Risk 3. Credit Risk 4. Liquidity Risk
    6. 6. How Do You Structure a Risk Management System? Client Organization & Process Control Portfolio <ul><li>Well-defined philosophy and process </li></ul><ul><li>Tools that support process </li></ul><ul><li>Robust valuation </li></ul><ul><li>Philosophy </li></ul><ul><li>Incentive structure </li></ul><ul><li>Organization structure </li></ul><ul><li>Process controls </li></ul><ul><li>Compliance </li></ul><ul><li>Reporting / communication </li></ul><ul><li>Investment objectives </li></ul><ul><li>Liquidity requirements </li></ul><ul><li>Risk tolerance </li></ul><ul><li>Asset allocation </li></ul><ul><li>Guideline construction </li></ul>
    7. 7. What Is Really Required For Risk Management? <ul><li>Avoid tunnel vision </li></ul><ul><ul><li>Black box models work the worst when you need them the most </li></ul></ul><ul><li>Scrutinize assumptions </li></ul><ul><ul><li>VAR - correlations and volatilities break down in a structural change </li></ul></ul><ul><li>Interpret risk management as a soft science </li></ul><ul><ul><li>No model can completely capture the complex world where people drive decisions </li></ul></ul>
    8. 8. Global Bonds as a Diversification Tool <ul><li>Large bond universe means greater opportunities to add value </li></ul><ul><li>Diversification Benefits </li></ul><ul><ul><li>Low correlations across global markets </li></ul></ul><ul><ul><li>Adding foreign bonds should reduce overall portfolio risk </li></ul></ul>
    9. 9. Mexico Analysis * Annualized
    10. 10. Adding International Bonds to Portfolios Can Lead to Higher Returns SOURCE: PIMCO, Datastream, Citigroup World Government Bond Index (WGBI) Non-U.S. Hedged Versus U.S. Component of Citigroup WGBI Past performance is no guarantee of future results. This model illustrates the stated combination bonds (Foreign bonds and U.S. bonds) from 1986 to 1999. Different time periods may produce different results. Certain assumptions were made in this analysis which have resulted in the returns detailed herein. Transaction costs (such as commissions) are not included in the calculation of returns and changes to the assumptions may have an impact on any returns detailed. <ul><li>Diversification benefits </li></ul><ul><ul><li>Adding hedged foreign bonds to U.S. portfolios increases returns and decreases risks </li></ul></ul><ul><li>Investment vehicles </li></ul><ul><ul><li>Yankee bonds </li></ul></ul><ul><ul><li>Euro bonds </li></ul></ul><ul><ul><li>Brady bonds </li></ul></ul><ul><ul><li>Non $-denominated bonds </li></ul></ul><ul><ul><li>Futures, options, swaps </li></ul></ul><ul><li>New opportunities </li></ul><ul><ul><li>Advent of Euro creates rapid development of European bond markets </li></ul></ul><ul><ul><li>Jumbo corporate securities </li></ul></ul><ul><ul><li>European high yield </li></ul></ul><ul><ul><li>Mortgage-backed securities </li></ul></ul>Efficient Frontiers: 10-Year period ending 03/31/03 WGBI ex-USD (hedged) and US Treasuries 6.8 7.0 7.2 7.4 7.6 7.8 8.0 8.2 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4 4.6 4.8 5.0 Annualized Standard Deviation (%) Expected Return (%) WGBI ex-US US Treasuries Treasury + WGBI ex-US WGBI ex-US US Treasuries
    11. 11. Best and Worst Performing Bond Markets 1987 – 2002 (Currency Hedged in US$) <ul><li>At different times, different markets perform well </li></ul>SOURCE: Datastream, Salomon Brothers -10 -5 0 5 10 15 20 25 30 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 Percent (%) Poland UK Japan US Aus Aus UK France Austria Neth Spain UK UK Japan US Switz Aus Switz Switz Switz Spain Ger UK Italy US Austria Japan France Japan WGBI US UK Japan
    12. 12. Currency Unhedged Positions Add to Portfolio Volatility SOURCE: PIMCO, Datastream, Citigroup World Government Bond Index (WGBI) Non-U.S. Unhedged vs. U.S. Component of Citigroup WGBI. Past performance is no guarantee of future results. This model illustrates the stated combination bonds (Foreign bonds and U.S. bonds) from 1986 to 1999. Different time periods may produce different results. Certain assumptions were made in this analysis which have resulted in the returns detailed herein. Transaction costs (such as commissions) are not included in the calculation of returns and changes to the assumptions may have an impact on any returns detailed. Foreign Bond Diversification from a U.S. Investor's Perspective, 1986 to 1999, Using Unhedged Foreign Bonds 7.0 7.5 8.0 8.5 9.0 9.5 10.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 Volatility (%) Mean Return (%) 100 % U.S. Bonds 100 % Unhedged Foreign Bonds
    13. 13. The Currency Hedge Decision: Hedged vs. Unhedged Portfolios <ul><li>Currency returns are very volatile </li></ul><ul><li>Unhedged portfolios imply large currency positions </li></ul><ul><li>Expected long-run currency returns are small </li></ul>
    14. 14. Preliminary Steps to Funding a New Fixed Income Portfolio <ul><li>Understand your return objectives and risk tolerance (including regulatory restrictions) </li></ul><ul><li>Determine your service requirements </li></ul><ul><li>Select necessary partners including an investment manager and a custodian bank </li></ul><ul><li>Develop a set of investment guidelines; draft an investment management agreement </li></ul>
    15. 15. Why Benchmark? <ul><li>Establishes expectations for portfolio risk and return </li></ul><ul><li>Helps portfolio managers to understand the restrictions on the types of securities that they may hold, as well as to define the risk exposures they may assume </li></ul><ul><li>Provides a useful focus for reviewing portfolios </li></ul>
    16. 16. Higher Discretion, Higher Information Ratio 1) Criteria of Full, Medium, and Limited Authority: a) use of swaps including spread locks and default swaps b) use of long and short futures and options c) use of sell/buybacks and the corresponding 1-year duration cash-backing instruments including MBS/ABS d) at least 10% currency exposure versus the benchmark e) at least 20% market value in country exposure versus the benchmark  If an account allows criteria a, b, and c, it would be Full Authority.  If an account allows at least 3 of the 5 criteria, it would be Medium Authority.  If an account allows less than 3 of criteria, it would be Limited Authority. 2) Information Ratio is calculated by as follows: a) Calculated for PIMCO’s global accounts which have more than 3 years track records from the end of November 2001. b) Formula is (Last 3 years annualized monthly alpha) / (Last 3 years annualized tracking error of monthly alpha) Information Ratio 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Limited Authority Medium Authority Full Authority
    17. 17. Client Service and Reporting Capabilities Client Daily, monthly, quarterly reports of portfolio statistics Client workstation and on-line access to portfolio information Unique access to firm insights and white papers Client meetings and board presentations Client educational seminars
    18. 18. Why Active Bond Management is Important Now <ul><li>Benefits of active management </li></ul><ul><ul><li>Provides returns over and above those of passively managed portfolios </li></ul></ul><ul><ul><li>Exploits inefficiencies in the marketplace </li></ul></ul><ul><ul><li>Reduces risk and adds diversification </li></ul></ul><ul><li>Active fixed income management works </li></ul><ul><ul><li>Median active manager outperformed market </li></ul></ul><ul><ul><li>Effective selection of active manager can add even more </li></ul></ul><ul><li>Active management is more important than ever </li></ul><ul><ul><li>Low absolute returns across asset classes expected </li></ul></ul><ul><ul><li>Alpha generation significantly more important </li></ul></ul>cs_active_bond_mgmt_11 * Performance as of December 31, 2003. All periods over 1 year annualized. ** Frank Russell Company Active Core Fixed Income Universe. The Frank Russell Company Fixed Income Universe is comprised of fixed-income oriented, fully discretionary, tax-free portfolios. 10 Yrs.* 5 Yrs.* 3 Yrs.* 1 Yr.
    19. 19. Investment Philosophy: Diversified Sources of Value Added <ul><li>Construct diversified portfolios that draw on multiple strategies both top down & bottom up </li></ul><ul><li>Top down strategies include duration, country selection, curve positioning and currency </li></ul><ul><li>Bottom up strategies draw on the expertise of specialist teams </li></ul>Duration Country Yield Curve Positioning Currency Credit Analysis Sector / Quality Volatility Short-Term Management Value Added Top Down Strategies Bottom Up Strategies Benefits No single strategy dominates risk in portfolios Aims to reduce overall portfolio volatility while smoothing the value added Diversification does not ensure against loss.
    20. 20. Investment Process: Driving the Best Ideas Into Portfolios <ul><li>3-5 year horizon </li></ul>Bottom Up Strategies Specialist Teams PIMCO Global Investment Committee <ul><li>Thematic discussion </li></ul><ul><li>Structural biases </li></ul><ul><li>Risk allocation </li></ul><ul><li>Recommend best ideas within sector </li></ul><ul><li>Provide sector analysis & intelligence </li></ul><ul><li>Implementation / Execution </li></ul><ul><li>Construct model portfolio </li></ul><ul><li>Monitor implementation </li></ul><ul><li>Monitor portfolios daily </li></ul>Strategy subject to change without notice. Secular Forum Cyclical Forum <ul><li>Examine four regions </li></ul><ul><li>Forecast GDP & CPI </li></ul>Top Down Economic Themes
    21. 21. Investment Process: Comprehensive Approach Across All Sectors <ul><li>Specialists provide depth in every fixed income sector </li></ul><ul><li>Structural trends </li></ul>Global Model Portfolio Secular and Cyclical Macroeconomic Themes Emerging Specialists Convertible Specialists International Specialists Technology Specialists Municipal Specialists Mortgage Specialists Generalist Portfolio Managers Credit Specialists C I n v e s t m e n t o m m i t t e e l a b o l G Gov’ts/Futures Specialists Short-Term Specialists
    22. 22. Global Economy’s High Wire Act – Conditions for Instability Accelerating Twin deficits financed by Asian central banks U.S. private sector highly levered Chinese economy highly levered Increased government control Cheap money <ul><li>Secular Implications </li></ul><ul><ul><li>GDP Growth: </li></ul></ul><ul><ul><ul><li>U.S. stabilizes around 2% </li></ul></ul></ul><ul><ul><ul><li>Europe, Japan move toward 2% </li></ul></ul></ul><ul><ul><li>Inflation peaks near 4% </li></ul></ul><ul><ul><li>Reactive Fed </li></ul></ul>Deflation Inflation Risks Risks Goals Opinion is subject to change without notice. Continued Stable Climb in China, Japan Steady Economic Growth in U.S. Increased Growth in Europe U.S. consumer slowdown Slowdown shock in Asia Geopolitical instability Central Bank interest rate hikes
    23. 23. Global Strategy Duration Country Allocation Currency Long C$ vs. US$ (if allowed) <ul><li>As fiscal stimulus fades, strong corporate profits will encourage investment and hiring </li></ul><ul><li>Target U.S. duration below benchmark to guard against higher rates </li></ul><ul><li>Tactically invest in mortgage securities when spreads compensate for extension risk </li></ul>Underweight Dollar-Bloc (Includes Canada and Australia) Duration below benchmark Underweight Overweight <ul><li>Growing twin US deficit will continue to undermine the US dollar </li></ul>Long Yen vs. US$ Long Euro vs. US$ <ul><li>Japan </li></ul><ul><li>Japan’s economy will grow near 2.5% on strong exports and capital expenditure </li></ul><ul><li>Target below-index duration; low yields and improving growth prospects could boost equities and hurt bonds </li></ul>Japan <ul><li>European bonds remain attractive, especially front ends </li></ul><ul><li>Overweight long-end of Europe, relative to UK </li></ul><ul><li>Japanese bonds remains unattractive </li></ul><ul><li>Euroland </li></ul><ul><li>Growth will remain below trend, structural reform will dampen employment and consumption </li></ul><ul><li>Maintain over weight, especially at the short end of the yield curve </li></ul><ul><li>UK </li></ul><ul><li>Position for steeper yield curve as reflation and heavy gilt issuance put upward pressure on long rates </li></ul>Summary Europe
    24. 24. How Would You Structure An AFORES Portfolio Today? For a hypothetical Global Government portfolio benchmarked against the J.P. Morgan Global Government Bond Index (ex non-lOSCO countries). The structure of the portfolio is subject to change. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. AAA Average Portfolio Quality Sample Hypothetical Portfolio Benchmark Regional Breakdown (duration weighted exposure %) Short to Intermediate focus Yield Curve Positioning Sector Breakdown (duration weighted exposure %) 0.75 years below benchmark Duration 9% 24% 67% 39% 0 1% 7% 23% 30% U.S. & Dollar Bloc Euroland United Kingdom Japan 95% 0 1% 0 1% 0 3% Sovereigns & Agency Mortgage Backed Corporate U.S. Municipals
    25. 25. Why Bonds If Rates May Increase? SOURCE: PIMCO Analytics Note: The simulation assumes that rates change on day one and then stay constant for the next thirty years. 1 Index prices, yield to maturity (4.7%) and duration (4.8 years) as of 06/30/04. The interest rate shifts are assumed to occur instantaneously rather than over time and are then held static over the entire period. 2 Assumes that with no change in interest rates, index return equals initial yields plus estimated impact of “roll-down”. Hypothetical example for illustrative purposes only. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Hypothetical or simulated performance results have several inherent limitations. Unlike an actual performance record, simulated results do not represent actual performance and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated performance results and the actual results subsequently achieved by any particular account, product, or strategy. In addition, since trades have not actually been executed, simulated results cannot account for the impact of certain market risks such as lack of liquidity. There are numerous other factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results. The simulation assumes the index portfolio is static despite interest rate movements. Hypothetical Illustration of Annualized Index Returns Over Various Time Horizons 1 Change in Interest Rates 9.4 4.8 1.9 (1.9) 1-Year 3.9 4.4 4.7 5.0 5.9 -100 bps 4.8 4.8 4.8 4.8 4.8 0 bps 2 5.7 5.4 5.3 5.1 4.7 +100 bps 6.6 6.0 5.6 5.2 4.2 +200 bps 30-Year 10-Year 7-Year 5-Year 3-Year
    26. 26. Appendix I: Derivatives
    27. 27. De-Mystifying Derivatives <ul><li>What is a derivative? </li></ul><ul><ul><li>A financial instrument that derives its value from movements in an underlying security </li></ul></ul><ul><ul><li>Financial derivatives include: </li></ul></ul><ul><ul><ul><li>Forwards </li></ul></ul></ul><ul><ul><ul><li>Futures </li></ul></ul></ul><ul><ul><ul><li>Swaps </li></ul></ul></ul><ul><ul><ul><li>Options </li></ul></ul></ul><ul><ul><ul><li>CMOs </li></ul></ul></ul><ul><ul><ul><li>IOs/POs </li></ul></ul></ul><ul><ul><ul><li>Structured Notes </li></ul></ul></ul>
    28. 28. Using Derivatives in a Fixed Income Portfolio <ul><li>Derivatives can replicate the most common physical securities of the bond market such as Treasuries, mortgages, and corporate bonds </li></ul><ul><li>Derivatives can facilitate more precise duration, curve, and spread risk management </li></ul>Cash Vehicles Treasuries Mortgages Corporates Derivative Instruments Treasury Futures Options/ Forwards Interest Rate and Credit Swaps
    29. 29. Several Ways to Achieve Duration Target = Ten-Year Note 8 Year Duration Ten-Year Futures 8 Year Duration = Total Desired Duration Five-Year Futures 4Yr Duration 4Yr Duration Assets: Cash: Liabilities: $100 $0 $0 $100 Net Assets: $100 $100 ($100) $100 $200 $100 ($200) $100
    30. 30. Rapid Growth of Swap Market U.S. Interest Rate Swap Outstanding Trillions ($) SOURCE: BIS, PIMCO
    31. 31. Benefits of Swaps <ul><li>Benefits </li></ul><ul><ul><li>Liquidity </li></ul></ul><ul><ul><li>Becoming the “benchmark” in many markets </li></ul></ul><ul><ul><li>Ability to customize and hedge portfolio risks </li></ul></ul><ul><ul><li>Ability to alter spread exposure </li></ul></ul><ul><ul><li>No exchange of principal minimizes counterparty risk </li></ul></ul>
    32. 32. Appendix II: Trade Flow
    33. 33. Life Cycle of a Trade Transaction through block confirmation Functions Middle Office Compliance Transaction Related Compliance <ul><li>Block Trade detail reviewed and confirmed Pre-screen activity by scanning group </li></ul><ul><li>Broker initiated confirmation will occur within one hour if uninitiated by investment manager </li></ul><ul><li>Trade scanned to Compliance (non-STP trades) or sent via STP trade feed </li></ul><ul><li>Compliance team checks eligibility of trade </li></ul><ul><li>Non-compliant trades sent to PM / AM for resolution (Trade Inquiry System) </li></ul><ul><li>Compliance logs & accounts for all tickets </li></ul><ul><li>Prior to execution, Portfolio Managers check guidelines to determine eligibility of trade (pre-compliance check) </li></ul><ul><li>Upon execution, Portfolio Managers write trade ticket or entered into Bloomberg (Straight Through Processing (STP) system) for all available product types (Corp, HY, Muni, Bank Loan, Preferred Stock) </li></ul><ul><li>Non-STP trades allocated and sent to Middle Office </li></ul>Trade Info Review Block Execute Broker Back Office Compliance Checked Broker Trading Desk Confirm Block
    34. 34. Life Cycle of a Trade (continued) Compliance through performance reconciliation Reconciliation & Performance Calculation Broker Back Office Custodian Bank Ticket Audit Allocation Confirmed Back Office Functions Client Services Trade Settlement / Accounting <ul><li>Portfolios priced daily by Pricing and Performance Group </li></ul><ul><li>Monthly reconciliation with custodian </li></ul><ul><li>Performance / holding transactions reported to client </li></ul><ul><li>Fully allocated and compliant trades scanned to back Office Operations. STP release down trade feed </li></ul><ul><li>Trades entered into account system (SMARTS) </li></ul><ul><li>All tickets audited to ensure correct and complete information </li></ul><ul><li>Trade settled by specialized team </li></ul>
    35. 35. Appendix III: Fixed Income Risk Management
    36. 36. 1. Measuring Interest Rate Risk: Duration <ul><li>Duration is an estimate of a security or portfolio’s price sensitivity in response to changes in interest rates </li></ul><ul><ul><li>Defined as net present value of weighted average cash flows </li></ul></ul><ul><ul><li>Measured in years (like average maturity) </li></ul></ul><ul><ul><li>Two rules of thumb: </li></ul></ul><ul><ul><ul><li>Longer the maturity, longer the duration </li></ul></ul></ul><ul><ul><ul><li>Lower the coupon, longer the duration </li></ul></ul></ul><ul><li>Examples: </li></ul>105 +5% -1.0% 5 Years 100 95 -5% +1.0% 5 Years 100 Ending Price Change In Price Change In Yield Duration Starting Price
    37. 37. 2. Volatility Risk <ul><li>Definition: The risk that changes in interest rate levels will materially alter the expected cash flow pattern of a bond and change the rate at which these cash flows can be reinvested </li></ul><ul><li>Example: This is most prevalent in bonds with embedded options </li></ul><ul><ul><li>Mortgage Backed Securities: The option for homeowners to prepay their mortgage makes cash flows uncertain </li></ul></ul><ul><ul><li>Corporate Securities: The option for corporations to call their bonds may cap price appreciation when rates fall </li></ul></ul><ul><li>Measurement: </li></ul>SOURCE : Frank Fabozzi <ul><ul><li>Convexity </li></ul></ul>
    38. 38. 2. Mortgages – Spreads (vs. Treasuries) Compensate for Volatility Risk Fixed Rate MBS Spread Level SOURCE: Bloomberg Financial Markets Spread Level (bps)
    39. 39. Credit Risk <ul><li>Definition: The risk that a promised yield on a corporate bond will fail to compensate the investor for bearing the risk of default </li></ul><ul><ul><li>Spread risk </li></ul></ul><ul><ul><li>Downgrade risk </li></ul></ul><ul><ul><li>Default risk </li></ul></ul><ul><li>Example: Fixed income securities other than those guaranteed by major Governments carry some amount of credit risk </li></ul><ul><li>Measurement: Credit risk must be evaluated at the individual security and portfolio level. Two key metrics: </li></ul><ul><ul><li>Quality rating </li></ul></ul><ul><ul><li>Credit spread duration </li></ul></ul>SOURCE: Frank Fabozzi
    40. 40. Types of Credit Risk SOURCE: Moody’s and Citigroup Yield Book B AA AAA BAA A Quality CAA and Below BA 562.7 65.6 37.6 168.8 92.2 Average Spreads 1206.0 341.7 1992-2003 (bps) Min: 338.4 Max: 1082.5 Range: Min: 48.5 Max: 136.1 Range: Min: 37.1 Max: 119.2 Range: Min: 88.6 Max: 373.3 Range: Min: 56.5 Max: 184.9 Range: Spread Risk Min: 561.6 Max: 2033.9 Range: Min: 166.3 Max: 734.3 Range: 1992-2003 Spreads to Treasuries (bps) 3.3 7.2 N/A 10.6 4.7 Downgrade Risk 7.2 4.7 Down/Up Ratio 2002 6.9 0.0 0.0 1.0 0.7 Default Risk 36.8 2.1 Default Rate 1994-2002 (%) 1472.3 568.0 284.7 128.4 87.6 82.1 744.1
    41. 41. Liquidity Risk <ul><li>Definition: Liquidity risk is the risk that the investor will have to sell a bond below its “true value” where the true value is indicated by a recent transaction </li></ul><ul><li>Example: Periodic freezing of corporate market during periods of financial distress </li></ul><ul><li>Measurement: Bid-Ask Spread </li></ul>SOURCE: Frank Fabozzi
    42. 42. Measuring Liquidity Exposure: Bid-Ask Spread Levels bonds bonds Finance Corporates Aa/Aaa <ul><li>Bid-Ask spread levels vary by sector of the bond market </li></ul>SOURCE: Frank Fabozzi <ul><li>They also fluctuate widely in times of distress in fixed income markets </li></ul>Typical Bid-Ask Spreads of Distress Bid-Ask Spreads in Times Bid-Ask Spreads Bid-Ask Spread (% of Price) 0 1 2 3 4 5 6 Treasury Bill On-the-run notes and Off-the-run notes and A Rated Corporates B Rated Industrial Fixed Rate Generic MBS Municipals (long), Rated