As a recent finance graduate, you have persuaded all your family members to start up a Self Managed Super Fund. To demonstrate your financial knowledge and skills, you decided to recommend a $1m bond portfolio to your family Fund.

Your family members don’t approve investment into corporate bonds. Thus you are required to construct and manage a bond portfolio using Australian Treasure bonds only. You can construct any portfolio that satisfies the restriction that at least 5% of portfolio value is held in each bond and no more than 10 bonds will be held in the portfolio.

Your aim is to construct a portfolio to profit from anticipated movements in the yield curve over the period 18th September 2014 to 10th October 2014. In order to maximise the annualized return (on a semi-annual compound basis) on your portfolio you must

1. form a view as to the most likely shift in the yield curve over the period and
2. construct the portfolio that can take advantage of this anticipated movement.

You must assess your performance as a portfolio manager against the following benchmarks

1. an equally weighted bond portfolio of all bonds you selected and
2. the S&P/ASX Australian Fixed Interest Index.

Please detail the performance of your portfolio and that of the benchmark portfolios on a day by day basis.

All exchange traded Australian government bonds are listed on ASX. The daily and historical trading prices can be found at ASX website or Bloomberg

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