Bonds

Economics

The ant and the grasshopper

What happens when babyboomers retire? Have we saved enough for retirement or are we living beyond our means? Academics argue high savings by prime-aged babyboomers in their 'summer' have depressed real interest rates in recent decades. But the community is split as to what happens next as 'winter' comes.

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Portfolio Thinking

The linker tail

The UK inflation-linked government bond ('linker') market is dominated by vast UK defined benefit pension schemes. Derisking by schemes tends to increase demand for linkers as equity prices rise, pushing up their prices. For multi-asset investors seeking diversification, that could make them less attractive to buy.

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Strategy

Land of slope and glory

The US yield curve has consistently flattened since the Federal Reserve began tightening monetary policy several years ago. History strongly suggests that this is an entirely normal market reaction to a rate hiking cycle. If short-term interest rates continue to rise at the pace we expect, we could well be looking at an inverted curve by the middle of 2019.

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Portfolio Thinking

UK - The inflation nation?

Unlike their US or Eurozone counterparts, UK pension funds will readily pay quite a premium for inflation protection. However, that premium is relatively unattractive for multi-asset investors, who we think can find better ways to manage UK and global inflation risks.

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Economics

Overrated? Why ratings agencies could be a contrarian indicator

How does emerging market debt typically perform after being downgraded from investment grade? Does forced selling lead to underperformance or is it all in the price by then?

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Portfolio Thinking

Pulp Fixion

At times, over 50% of fixed income managers outperform their benchmark indices. Understanding the drivers for that is important for manager selection, but far too often it's attributed to the wrong causes. It's time to pulp the fiction and instead recognise the roles that non-benchmarked investors and new issue premiums play.

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Strategy

Twin peaks: the law of averages and the zero lower bound

In pricing fixed income securities, a lot hangs on the difference between the mean, median and mode. Markets reflect a probability-weighted average of potential outcomes (i.e. the mean); policymakers typically focus on the single most-likely outcome (i.e. the mode). Thinking carefully about the difference has important implications for how we view interest rate risks.

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