Fixed Income/Credit

Investors here seek to capitalize on pricing differences in different interest-rate securities by taking both long and short positions on a given trade, while minimizing interest rate risk. This strategy plays out in various segments of the bond market including mortgage-backed securities (MBS), sovereign debt and corporate debt.

These credit securities typically are collateralized by an underlying pool of cash flow-generating debt, such as receivables, loans and leases. ABS yields income at a pre-defined rate for a specified duration until maturity.

Here, the bond holder has the right to convert the security issued by the corporate into a predetermined number of common stock or equity shares in the company at certain times during the bond’s life. Such hybrid securities, which yield interest, are usually price sensitive to changes in interest rates, the value of the underlying stock and the given corporate’s credit rating.

Here, the bond holder has the right to convert the security issued by the corporate into a predetermined number of common stock or equity shares in the company at certain times during the bond’s life. Such hybrid securities, which yield interest, are usually price sensitive to changes in interest rates, the value of the underlying stock and the given corporate’s credit rating.

Also known as “junk” bonds, these securities are issued by companies having sub-investment grade credit ratings, and hence, yield higher interest rates because of the associated higher risks of default.

This strategy allows investors to place opportunistic bets across different segments in the credit universe, irrespective of the market climate. Based on an analysis of different credit-sensitive securities, the fund manager goes long on some fixed income securities, while betting against some.