Market inefficiency is a growing opportunity in fixed income

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.

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Are illiquid bonds the ‘WeWork’ of the fixed income world?

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.

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The vanishing yield cushion

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.

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Compensation for credit risk is poor

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?

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Strange behaviour in option markets

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.

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The hidden equity beta in many fixed income funds

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.

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