Bond investors are used to managing interest-rate risk and credit risk. But the financial crisis should have taught us that there are times when liquidity risk can be just as important to manage. Now is one of those times.
Pension fund managers, like many investors, have historically paid a premium for liquidity. Lately they’ve started to realize that liquidity can be an illusion—but it can also be an opportunity.
By Jeff Skoglund (pictured) and Shrut Vakil of AllianceBernstein (NYSE: AB)
US banks have come a long way since the financial crisis, and that’s good news for fixed-income investors. We think better fundamentals and stricter regulations are creating a good formula for banks’ preferred securities.
To protect their portfolios from rising interest rates and volatility, many high-yield investors have headed for short-duration strategies. We think some of the more popular approaches may expose investors to bigger hazards than they realize.
High-yield bonds’ attractive income has made them popular in today’s low-rate environment. But market complacency has caused callable-bond investors to ignore a lurking risk: duration extension in a rising-rate scenario.
By Doug Peebles (pictured) and Ivan Rudolph-Shabinsky of AllianceBernstein (NYSE:AB)
The US Fed has said it will almost certainly boost short-term interest rates by 2015, and many bond investors are focused intently on managing the risks of rising rates. But it’s also important to recognize that there are benefits. (more…)
We think investors who build laddered portfolios to protect against rising rates will be disappointed—by locking in low yields with traditional ladders or by hidden risks of higher-yielding ladders. In our view, actively managed portfolios are better able to take advantage of changing markets.
Posted by Jorgen Kjaersgaard (pictured) and Steve Hussey of AllianceBernstein (NYSE: AB)
European banks are issuing new subordinated bonds that can be written off in a crisis. For investors who are willing to take the risk, our analysis suggests these bonds may provide a way to beat the low returns in today’s corporate bond market.
Asia’s three biggest economies—China, India and Japan—are carrying out reform programs. Taken individually, these may do little to excite investors’ imaginations, but taken together, they become much more interesting.
Chasing returns into—and out of—specific credit sectors happens so often in bond markets that it hardly rates a raised eyebrow. But running with the herd can be risky, which is probably why Federal Reserve officials reportedly have discussed slapping exit fees on bond funds to avoid a disorderly rush to the exit. (more…)