How to Quantify Muni Risks

How to Quantify Muni Risks

Earlier this year, municipal bond investors chasing returns often found themselves over their skis on risk. In our recent call, our fixed income portfolio managers Chris Ryon and Sweta Singh explain their quantitative approach to calculating and managing risk.

Sweta SinghSweta Singh:  [If] you cannot measure risk and opportunities, how do you manage them? …[W]e prefer a quantitative approach where we arrive at a top-down picture by building and monitoring a macro-view dashboard. We study various curves, be it Treasuries, agencies, municipals for tax exempt, taxable, corporate. In addition to that, we look at a variety of metrics like roll-down in the curve…core PCE—the Fed's favorite inflation measure—5-year, 5-year break even.

So now, armed with this macro view, we come into the market every day and we look at offerings from our extensive broker dealer network. We also are on a bunch of electronic trading platforms, because frankly, both of us think that they're doing a really good job right now in providing some liquidity in the market. We analyze both opportunities and determine our best ideas by every day being in the market looking at these securities.

Chris Ryon

Chris Ryon I view risk management as an essential part of being a portfolio manager.  It’s not separate. We have performance attribution tools that identify what the risks are. And that allows us look at the bets we made, how they impacted the portfolio, whether to continue with them, cut them off or add to them, rinse and repeat. That's a continuous cycle.




Listen to the full call to hear our candid takes on risk, valuation, and where to search for opportunities now.

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