Interest Rates Strategies

Our approach enables us to generate returns in both rising and falling interest rate and market environments.

Experience and intuition would suggest that the main driver of fixed income returns are interest rates. Regression analysis confirms that between 80-85% of core fixed income returns can be explained by movements in interest rates.

 rates_regressionRegression of fixed income returns versus movements in interest rates (XBB CN Equity and GCAN10y Index, Source: Bloomberg).

Manage Duration

Accordingly, our first priority is actively managing the portfolio’s overall exposure and sensitivity to movements in rates. In doing so, we are able to mitigate portfolio volatility and offer investors a return stream with a low correlation to the direction of rates.

Relative Value

To enhance portfolio returns we look for relative value opportunities in interest rate markets. These positions are based on pricing differentials between various securities, in an effort to extract value while minimizing volatility.

Active Trading

We also generate additional returns through active interest rate trading. Our preferred arena is the short end of the yield curve, where we take advantage of opportunities created by the actions (or inaction) of central banks. We use both fundamental and analytical models to determine the probability the market has priced in for a central bank move and seek opportunities where values have drifted too far in one direction.