Treasury basis and dollar overshooting

Safe dollar assets, such as Treasury securities, carry significant convenience yields. Their suitability for liquidity management and collateralization means that they provide value over...

Commodity trends as predictors of bond returns

Simple commodity price changes may reflect either supply or demand shocks. However, filtered commodity price trends are plausibly more aligned with demand, economic growth...

U.S. Treasuries: decomposing the yield curve and predicting returns

A new paper proposes to decompose the U.S. government bond yield curve by applying a ‘bootstrapping method’ that resamples observed return differences across maturities....

The dollar as barometer for credit market risk

The external value of the USD has become a key factor of U.S. and global credit conditions. This reflects the surge in global USD-denominated...

Equity values and credit spreads: the inflation effect

A theoretical paper shows that a downward shift in expected inflation increases equity valuations and credit default risk at the same time. The reason...

CDS term premia and exchange rates

The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks because rising country risk affects short-dated maturities more than...

A simple rule for exchange rate trends

Over the past decades developed market exchange rates have displayed two important regularities. First, real exchange rates (nominal exchange rates adjusted for domestic price...

Overconfidence and inattention as asset return factors

Overconfidence in personal beliefs and inattention to new trends are widespread in financial markets. If specific behavioural biases become common across investors they constitute...

Policy rates and equity volatility

Measures of monetary policy rate uncertainty significantly improve forecasting models for equity volatility and variance risk premia. Theoretically, there is a strong link between...

Monetary policy stance in one indicator

New research proposes to condense policy rates and balance sheet actions into a single implied short-term interest rate. To this end the term premium...

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Equity return anomalies and their causes

The vast range of academically researched equity return anomalies can be condensed into five categories: return momentum, outperformance of high valuation, ...

Basic factor investment for bonds

Popular factors for government bond investment are “carry”, “momentum”, “value” and “defensive”. “Carry” depends on the steepness of the yield curve, which to some...

Endogenous market risk: updated primer

Endogenous risk arises from the interaction of financial market participants, as opposed to traded assets’ fundamental value. It often manifests as feedback loops after...

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