Question: In debt asset management (e.g., HY bonds), how do you calculate returns on a specific bond investment, which you have multiple buys/sells in over the holding period? Thus not portfolio return, but investment return.

Hi all, I hope this is an ok place to ask this:

Case: Assume you find a corporate bond you want to invest in. You then invest in it below par several times over the years, and you also sell bits of your holdings above par. It then matures, and you get your remaining nominal amount back at par. You therefore have uneven cash flows and uneven periods. Let’s assume the interest is fixed rate, although FRN can also come into play.

Question: What is the most correct and the most market-conform way to calculate annualised returns on the corporate bond investment, according to fixed income/debt asset management, if you calculate the return for the multiple investments and divestments in this bond, as a whole? Pooling all the cash flows, the buys, sells and coupons and the redemption.

Thoughts on solution:

I could divide it up per buy, as an individual investment, but that quickly becomes messy, particularly, how to get to ONE single return on the bond.

I could use IRR, but that would factor in the time value of money, and I am not sure that is the norm in debt asset management - furthermore, there seems to be some dispute on whether this assumes reinvestment of exited amounts during the holding period or not, and thus there are alternatives like MIRR, but that does not help my case.

The most common seems to be holding period returns, which then are annualised – but this method does not apply when I have multiple, seemingly random buys and sells in the bond etc.

I could go down the time-weighted return road, use a sort of NAV approach and geometrically link the returns?