Fixed income portfolio calculator: yield, duration, and credit mix

• Each of the seven sleeves has an allocation, an expected yield, a duration, and a credit rating. Weights are scaled to sum to 100 if you enter something else, so the blended numbers are not overstated.
• Portfolio yield and weighted duration are weighted averages of the sleeves. Annual income is the portfolio value times the portfolio yield, and monthly income is that divided by 12.
• After-tax income applies the tax rate you enter to every sleeve except municipal bonds, which the lab treats as federally tax exempt.
• The credit, diversification, liquidity, and risk scores are 0 to 100 summaries built from rules inside the lab: ratings map to points, the largest sleeve sets diversification, and Treasury and cash sleeves count as most liquid.
• Four rate scenarios estimate the price change as weighted duration times the rate move, plus a credit spread term that grows as ratings fall. AAA sleeves carry no spread term.

Take the lab's starting portfolio: $20,000 split 30% Treasuries, 25% investment-grade corporates, 15% municipals, 10% TIPS, 10% high yield, 5% international bonds, and 5% cash. The blended yield is 4.70% and the weighted duration is 6.0 years. That produces $940 a year in income, about $78 a month, and about $841 a year after a 12% tax rate on everything except the municipal sleeve. The credit score is 89 out of 100, diversification is 40 because the largest sleeve holds 30%, and the risk score is 54. If rates rise 2 points, the lab estimates the portfolio falls about 11.98%. If rates fall 1 point, it estimates a gain of about 5.99%.

• The yields and durations are sample inputs you replace. The lab does not look up current rates for any sleeve.
• Price changes are duration estimates, which ignore convexity, so they are close for small rate moves and less so for large ones.
• The credit spread term uses fixed weights by rating: 0 for AAA, 0.3 for AA, 0.5 for A, 0.8 for BBB, and 1.2 for anything lower.
• The scores are the lab's own heuristics. They are not credit ratings or a recommendation, and a different rule set would give different numbers.
• Tax is a single flat rate on income. State tax, the alternative minimum tax, and the tax on price gains are not modeled.

Finance Quest is educational. It is not financial advice, and no calculator here knows your full situation.

High yield bonds show 7.8% in the example, the highest on the list, but they hold a BB rating and add credit risk that a yield average hides. The blended 4.70% is a weighted average, so a 10% sleeve at 7.8% contributes 0.78 points of it. Read the yield next to the duration and the credit score, because the same yield can come with a very different price drop when rates rise.

The lesson for this lab is in Chapter 14, Bonds & Fixed Income. Read the lesson

• Asset allocationSet a stock, bond and cash mix against horizon and risk tolerance.
• BondYield-to-maturity and rate sensitivity.
• Portfolio rebalancingSee drift from target weights and the trades that correct it.