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Fixed Income, Monetary Theory, and Pina Coladas

  • ,  Chief Executive |
  • 09 Nov 2018
  • Updated 12 Nov 2018

Fixed Income: the best papers of the last month

A month ago, we discussed recent FOMC speeches that denounced R* (R-star) as a monetary policy tool.  The below list of papers picks up right where those left off, with QMA's insightful foray into R star models - some of which may even imply that current FOMC "dot plot" projections are too high.  If you like pina coladas, monetary theory, and gratuitous lyrical allusions, then this paper is definitely for you. 

Fixed income investors and asset allocators may also be interested in the Barings podcast on high yield bonds, Robeco's worldwide survey of central banks and sovereign yields, or GMO's fundamental analysis of EM corporate debt and state-owned enterprises.

pina colada monetary policy

R*, Rock Star or Dark Star? (QMA, Oct 2018)
QMA explains how an outcast, but once glamorous metric could foretell whether recent turbulence implies a Fed miscalculation or merely an adjustment to a higher rate environment.

Fed communication glitch triggers market turbulence (Fulcrum AM, Oct 2018)
Fulcrum Asset Management directly attributes some of the volatility in US equity markets experienced in October to FOMC speeches mentioning that less emphasis would be placed on R-star. 

See where trillions in fixed income assets moved in Q3 (SPDR ETFs, 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
SPDR ETFs’ Bond Compass report sheds light on global fixed income flows in the past quarter, global fixed income holdings, and bond market performance.  It also contains a unique proprietary inflation gauge. 

Podcast: Climbing High Yield's Wall of Worry (Barings, Oct 2018)
From risky 'covenant-light' bond structures, to Brexit, to the rising rate environment, global high yield markets seemingly come face to face with innumerable risks, yet have so far managed to scale the proverbial 'wall of worry.' 

Next Generation Bond Market (BlackRock, Sep 2018)
(For compliance reasons, this paper is only accessible in the United States)
The structure of the fixed income market, the liquidity environment, and preferences for specific product have all changed significantly in the past decade. BlackRock tracks the bond market's ongoing evolution in this report.

U.S. Treasury Yields are Rising: 3 strategy takeaways (Eaton Vance, Oct 2018)
(For compliance reasons, this paper is only accessible in the U.S. and Canada)
In our opinion, the upward move in bond yields highlights a deteriorating equity risk-reward outlook and pending style leadership shift.

Central Bank Watcher (Robeco, Oct/Nov 2018)
Robeco examines monetary policy across global central banks (the Fed, ECB, PBOC, and BoJ), also looking at yields on sovereign debt, inflation, and a variety of other economic and market-related data points.

Global Unconstrained Fixed Income Report (eVestment, Oct 2018)
This eVestment report examines data from 200 global unconstrained bond strategies at 96 different asset management firms, representing AUM of USD 450 billion.

Emerging Markets Debt (Manulife AM, Oct 2018)
(For compliance reasons, this paper is only accessible in the EMEA region)
Manulife discusses idiosyncratic risks in emerging market countries and recent events in Turkey and Argentina that have led to market volatility. 

Emerging Corporate Debt Fundamentals - How High is the Risk? (GMO, Oct 2018)
GMO discusses EM corporate debt, specifically focusing on a fundamental analysis of state-owned enterprises, also known as quasi-sovereigns.  They also look at the systemic risk imposed by a 'sudden stop' in liquidity for SOEs.

Institutions Turn to ETF's for Bond Market Liquidity (BlackRock, 2018)
(For compliance reasons, this paper is only accessible in the United States)
This Greenwich Associates study was sponsored by BlackRock and involved interviews with 87 institutions in the USA and Europe that make use of bond ETFs within their institutional portfolios.