Active Fixed-Income Strategies – Taking advantage of risk premia amid inflation
Summary
Inflation is one of the key risks for which investors want to be compensated. Bond yields, which move inversely to their price, fluctuate according to changes in the different risk premia such as expected inflation. Investors can use relevant instruments including derivatives to generate returns from such volatility. The paper explains how inflation can be an opportunity for active fixed-income investors.
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Active Fixed-Income Strategies: Real-world positioning examples
Summary
There are ways to take advantage of rising and falling inflation expectations as discussed in the above paper. In this paper, our examples illustrate which instruments and positions would have generated returns from yield changes under various scenarios. The paper looks at the movements in long-term US government bond yields and the so-called break-even inflation over the past 18 months (January 2020 to June 2021).