The world’s negative term premium

The term premium on the “world government bond yield” has turned decisively negative, according to BIS research. Investors have since 2014 accepted a long-term...

Why and when central banks intervene in FX markets

A new BIS paper summarizes motives and impact of FX interventions. Most importantly it looks at the conditions under which such interventions are effective...

Fixed income relative value

Relative value can be defined as expected price convergence of contracts or portfolios with similar risk profiles. For fixed income this means similar exposure...

Risk premia strategies

Risk premia strategies can be defined as diversifiable investment styles with fundamental value and positive historic returns. Their main types are (i) absolute value...

Volcker Rule and liquidity risk

The Volcker Rule has banned proprietary trading of banks with access to official backstops. Also, market making has become more onerous as restrictions and...

The 1×1 of trend-following

Trend-following is the dominant alternative investment strategy. Its historical return profile has been attractive on its own and for diversification purposes. It is suitable for...

Why and when “equity duration” matters

A new HSBC report suggests that if and when Quantitative Easing is being reversed it could be a watershed event for sectoral equity performance....

Using VIX for forecasting equity and bond returns

Over the past 25 years the relation between implied equity volatility (VIX) and market returns has been non-linear. When VIX was low there was no meaningful relation....

The danger of volatility feedback loops

There is evidence that the financial system has adapted to low fixed income yields through an expansion of explicit and implicit short volatility strategies....

China’s “double impact” on commodity prices

China consumes about one third of the world's commodities. However, its influence on commodity prices goes beyond that. Chinese institutions are also major users...

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There is often a strong case for hedging FX carry trades against unrelated global market factors. It is usually not difficult to hedge currency...

FX carry strategies (part 1)

FX forward-implied carry is a valid basis for investment strategies because it is related to policy subsidies and risk premia. However, it also contains...

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...

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