Bond Focus : Forex Homework For Bond Investors
This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading !
All this time in the markets and I never thought to look back on how lucky I had been, then, to have been given the opportunity to trade quite a spectrum of products, starting from vanilla interest rates on the balance sheets to forex and forwards, then to government bonds, credits and interest rate derivatives.
Most flow traders usually stick to their assigned products on the same desk they spend the rest of their lives on and usually do not have time to do anything else but stare at the same currency pairs day in and day out.
Fund managers are different creatures, and this goes for hedge funds as well, in that they have to form a bigger picture view that makes life more interesting. Correlation traders, too, look across asset classes for their rocket science backgrounds, but usually never looking too much past those statistical coefficients of theirs and models churning out trade ideas that are but numbers and ratios.
And I am glad that the pay gap between asset managers and bankers is finally closing as reported in the FT.
I would qualify that my experience has not made me a better or smarter trader than any other except that it has given me more to worry about, more sleepless nights, more markets to follow, more confusion and, sometimes, less understanding, without necessarily improving my net worth.
Yet, if anytime in the history of financial markets would it be imperative for a bond investor to be aware of forex markets, it would be NOW. And bond investors usually opt for the safety and security of steady fixed income precisely for the reason of avoiding the fast moving, angst inducing and heart wrenching world of foreign exchange, with the exception of high yield and distress debt investors.
With 24 central banks easing so far this year (25, if you consider Russia cutting their main rate by 1% yesterday after a massive hike just in Dec) and business headlines dominated by forex news, european bond yields falling into deep negative territory and currency volatilities at extremes, investors really have no choice but to pay attention to global developments or face uncertain losses or opportunity losses in their portfolios.
Singapore is the best case in point for 2015 with interest rates rising along with a weaker currency, even as other central banks cut their rates, causing many unsuspecting bond investors much anxiety as they watch their holdings depreciate in value.