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Tactical tools for a rising interest rate environment

02 February 2017

In a rising interest rate environment, corporate interest rate hedged indices can be attractive tactical instruments to manage duration risk and earn credit yield, alongside short duration and floating rate note products.

  • Markit iBoxx $ Liquid High Yield Interest Rate Hedged Index ("LQHYH") provided a return of 3.7% vs. 1.4% for the unhedged index in Q4 2016. For 2016, the hedged index returned 14.6% vs 15.3% for the unhedged index.
  • Markit iBoxx $ Liquid Investment Grade Interest Rate Hedged Index ("LQIGH") provided a return of 2.2% vs. -3.7% for the unhedged index in Q4 2016.
  • For 2016, the hedged index returned 5.9% vs. 6.4% for the unhedged index.
  • High correlation observed between the hedged index and corresponding CDX indices. For example, the 3 year rolling correlation of LQIGH and Markit CDX Investment Grade is 79%; the correlation of LQHYH and Markit CDX High Yield is 81% as of end of December 2016.
  • ETFs based on LQIGH and LQHYH indices are available.

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