Rising interest rates, high prices, rising populist politics. These are the challenges bond investors are now facing, and these challenges also remind the importance of integrated management of interest rate risk and credit risk. Many times, investors view interest-rate assets (global government bonds, anti-inflation bonds) and credit assets (high-yield corporate bonds, emerging market bonds) that are susceptible to economic growth as two separate asset classes, and assign them to Different managers manage.If the assets in the credit portfolio are too expensive to reasonably cover the investment risk, the manager can then sell some of the credit assets and move into a portfolio that is more sensitive to interest rates. However, managing credit and interest-rate assets separately can leave investors missing out on yield opportunities and overexposed to a single risk.
The Interaction of Market Cycles
The interaction between the Qatar Phone Number interest rate cycle and the credit cycle never stops. However, for the past 9 years or so, why has it seemed that even if investors ignore this interaction phenomenon, it has not been affected?The reasons for this can be traced back to the global financial crisis and the unusual environment it created. After the outbreak of the global financial crisis, interest rates fell sharply and inflation disappeared. The central bank’s monetary policy replaced the real economy and became a key variable in the global bond market. As a result, investors have paid little attention to interest rate risk over the years.
Interest rate assets and credit assets: the best of both worlds
AllianceBernstein believes that a “two-pronged approach” that combines the management of interest rate assets and credit assets is a more ideal approach. Integrating credit assets and interest rate assets into a single investment strategy with a “credit barbell strategy” helps minimize the chance of large losses while creating a strong and stable source of income. The credit barbell investment strategy incorporates asset classes with negatively correlated return characteristics (below). Among them, government bonds with high interest rate sensitivity have the characteristics of reducing risk and often perform well in an environment of slowing economic growth; on the contrary, high-yield corporate bonds and other credit assets help strengthen returns, and in times of accelerated economic growth and economic growth, It performed well in an environment of rising interest rates.