In a theoretically efficient fixed income market, closely related bonds (or derivatives) with similar risk characteristics would always be priced consistently. In reality, these prices persistently diverge from each other, which means fixed income markets are inefficient.
Liquid securities are those that can be readily bought or sold in sufficient volumes, at reliably transparent prices, without incurring punitive transaction costs. Illiquid securities are those that fail to meet these criteria to varying degrees. Liquidity is a spectrum rather than a binary concept.
Conventional approaches to fixed income investing rely on bond yields to generate returns. Most of the returns come from accumulating portfolios of bonds to harvest yield.
2019’s rampant bond rally came to a halt this month as bond yields rose, causing bond prices to fall across most major bond markets.
Following the sharp sell-off in Q4 2018, credit markets globally have performed strongly in 2019. Having seen a big dip, followed by a quick rebound, how are we now left?
Liquidity is one of those things that doesn’t get much focus until it’s too late.
In this article, we will discuss five key risks to fixed income markets for FY20 and explain their relevance to those allocating to fixed income investments.
Hedonic adaptation is a psychology term that describes the human tendency of reverting to a relatively stable or ‘normal’ state following either positive or negative life changes.
Finance text books, reams of academic research and practitioner experience all point to the existence of a “volatility risk premium” (VRP), which is a foundational principal of option selling strategies.
The managed fund research company Morningstar recently announced they are splitting their ‘intermediate term bond’ category into two new categories – ‘intermediate core bond’ and ‘intermediate core plus’ bond.