Fixed Income

Fixed Income spans government bonds, investment grade credit, high yield, securitized credit, EM debt, and short-duration liquidity sleeves. From an allocator lens, fixed income is defined by its portfolio role—ballast, carry, liability matching, or tactical risk—not just yield.

How allocators define Fixed Income exposure

Allocators segment fixed income by:

• Duration: short/intermediate/long; convexity and rate sensitivity
• Credit risk: gov/IG/HY; default and downgrade sensitivity
• Spread products: corporates, securitized, EM; liquidity under stress
• Inflation sensitivity: nominal vs real, breakevens, rate regime risk
• Liquidity function: ability to generate cash reliably in drawdowns

Core sleeves within Fixed Income

• Rates (Government): duration tool and crisis ballast (regime-dependent)
• Investment Grade: carry with credit migration risk
• High Yield: spread and cycle sensitivity, equity-like drawdowns in stress
• Securitized/Structured: complexity and prepayment/extension risk
• Short-duration/Cash: liquidity management and capital preservation

How Fixed Income fits into allocator portfolios

Used to:

• Fund liabilities, payouts, and capital calls
• Reduce drawdown severity (in the right regimes)
• Provide collateral and rebalancing dry powder
• Stabilize total portfolio volatility and liquidity planning

How allocators evaluate fixed income mandates/managers

Conviction increases when:

• Duration and spread risk are explicit and controlled
• Liquidity and trading constraints are realistic
• Stress scenarios are documented (rates up/down, spreads wide)
• Concentration and credit migration risks are transparent
• The mandate matches the intended portfolio role

What slows allocator decision-making

Common blockers:

• “Yield-chasing” without drawdown/stress clarity
• Hidden duration or illiquid credit exposure
• Overcomplex securitized exposure without transparent risk reporting
• Mandates that don’t match liability and liquidity needs

Common misconceptions

• “Fixed income is always safe” → safety depends on duration, liquidity, and credit regime.
• “Higher yield improves outcomes” → yield can be compensation for drawdown and liquidity risk.
• “Diversified credit means resilient” → correlation rises in stress.

Key allocator questions

• What is the effective duration and how does it change in stress?
• How liquid is the portfolio during spread blowouts?
• What is the downside in a rates-up + spreads-widen scenario?
• How much performance is carry vs price movement?
• Does this sleeve truly serve ballast, carry, or liquidity?