Session recording and slides

Erik Schiller: Structural inefficiencies and relative value fixed income

Structural inefficiencies and relative value fixed income

Many factors drive market prices. Fiscal and monetary policy, liquidity and speculation can drive structural imbalances or dislocations that can present opportunities for relative value investors. Where are the opportunities most likely to persist and how effective are these strategies in delivering uncorrelated returns while constraining downside risk?

Erik Schiller, managing director and head of liquidity, PGIM Fixed Income
Moderator: Alex Proimos, head of institutional content, Investment Magazine


Key Takeaways

  • The US Treasury market has consistently grown in the last ten years with a spike in the last twelve months whilst the US Repo market has remained much more constant.
  • The embedded value in the US Treasury market is at near record highs post GFC.
  • There is an arbitrage opportunity that arises when future prices and the deliverable cohort of sovereign bonds diverge in the leadup to delivery.

Poll results

What is the biggest risk associated with fixed income relative value investing?

  • Leverage
  • Illiquidity
  • Market dislocation
  • Banking regulation/policy