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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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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Mrs. Watanabe meets European insurance companies

Since the early 2000’s the name ‘Mrs. Watanabe’ has been used to describe yield seeking Japanese retail investors, who were forced to increase their offshore investment risk taking in response to ultra-low interest rates back home.

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