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Are Securitized Products Ready for the LIBOR-SOFR Transition? 

Fixed Income , Integrated Risk Management

Will the securitization industry be ready for the transition from LIBOR to the secured overnight financing rate (SOFR), as it faces the fact that LIBOR can no longer be guaranteed beyond the end of 2021? As the industry mobilizes, significant challenges remain.

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Hedging Inflation: A Scorecard 

Integrated Risk Management , Fixed Income , Global Investing , Risk Management

Aggressive actions by central banks and soaring government budget deficits have raised concerns among some investors that inflation may significantly rise. We examine whether an inflation hedge was worth the cost over the past 13 years.

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Same target, different destinations 

Integrated Risk Management , Models/Client Cases

Target-date funds (TDFs) have gained wide adoption in U.S. defined-contribution plans over the last decade, aided by the proliferation of auto-enrollment features and the funds’ presentation as a “set it and forget it” approach.

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Home bias in fixed income: Has it helped or hurt? 

Fixed Income , Global Investing , Integrated Risk Management

Has global diversification historically helped reduce risk in the fixed-income portfolios of U.S. defined-benefit (DB) pension plans? Our backtests show that globalizing bond allocations would have increased risk measured relative to a liability benchmark. For such plans, home bias in bond portfolios would have reduced active risk over the period of our study.

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Beware of FRTB cliff effects. Sharp curvatures ahead. 

Integrated Risk Management , Fixed Income , Models/Client Cases , Risk Management

The Basel committee’s revised market-risk capital requirements contain a small surprise with potentially big implications. Cliff effects remain in the framework.

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Evaluating the impact of LIBOR fallback 

Fixed Income , Global Investing , Integrated Risk Management

The planned discontinuation of LIBOR and other interbank offer rates sometime in 2022 will affect a large number of existing financial contracts based on these benchmarks.

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Have High-Yield ETFs Created Liquidity Risk? 

Fixed Income , Risk Management , Integrated Risk Management

In the fourth quarter of 2018, redemptions of high-yield ETFs soared to approximately 25% of these funds’ assets under management (AUM), according to data provider IHS Markit.

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Santander’s coco extension: The new market norm? 

Models/Client Cases , Fixed Income , Risk Management , Integrated Risk Management

Banco Santander announced it would extend — i.e., not call — its additional-tier-one contingent-convertible (coco) bond. Was the market caught off guard?

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The risk in risk-parity strategies 

Fixed Income , Integrated Risk Management

The relationship between bonds and equities may be especially important to investors who employ a risk-parity approach. In our analysis, as the bond-equity correlation turned strongly positive, the effect on risk-parity portfolios was much greater than that on traditional 60/40 equity/bond portfolios.

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What would a “No deal” Brexit mean for markets? 

Global Investing , Integrated Risk Management

Financial markets are increasingly edgy about prospects for the U.K. Parliament’s expected Dec. 11 vote on a Brexit deal with the European Union.