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Overcoming the risk challenges of trading fixed income securities 

March 21, 2014
James Williams, HedgeWeek

One of the clearest differences between trading equities and fixed income securities is the extent to which analytics play a role in risk management.

Equities go up, they go down. Fixed income securities, however, are subject to numerous parameters such as credit risk, yield-to-maturity, default risk and duration risk to name but a few. Most investors understand equities, yet the vast majority would no doubt struggle to explain the mechanics of fixed income.

This is despite the fact that fixed income strategies – spanning government bonds, sovereign bonds, high-yield corporate bonds, mortgage-backed securities, non-bank loans and emerging market bonds – remain an integral part of investors’ portfolios; typically 40 per cent. And whilst the debate rages on as to whether a ‘Great Rotation’ from fixed income into equities is now underway in the West, a new white paper by Misys - The ‘Real’ Great Rotation: Analyzing Shifts within Fixed Income & Towards Liability Matching - suggests that the reality is more nuanced.

Read more: HedgeWeek

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