Asset managers – fixed income

Where a fixed income portfolio includes bonds denominated in a range of currencies and/or corporate debt, the risk factors extend beyond the traditional duration and credit.

As the performance of currencies and equity markets are correlated and the spreads on corporate bonds are affected by the expected prospects of the underlying company, the analysis of a fixed income portfolio gains from EMA’s inclusion of equity based factors in its fixed income models.

Corporate bond spreads are calibrated based on the systematic factor exposures of the issuing entity so that in a VaR simulation the spread of the bond varies as the systematic factors are assumed to shift. The overall attribution of risk takes account of country and sector exposures that result from the mix of characteristics of the underlying companies.