Author Archive for David Rae

Riding the waves of the bond markets

Recent movements in the gilt market have reinforced the importance of ensuring that the design and implementation of a hedging strategy remains flexible enough to withstand market realities. Over the last month, we’ve seen the yield on the 30 year gilt move from 2.40% on 8 January all the way down to 2.08% on 30

Feb 18, 2015 Categories: Investment Strategy, Liability Hedging

To Autumn – David Rae shares his thoughts on the Autumn Statement

  As we come to the end of this season of mellow fruitfulness The Autumn Statement and the Office for Budget Responsibility (OBR) fiscal forecasts will provide further colour on the state of the economic recovery. Given the recent downward revisions of medium term growth forecasts from the Bank Of England, we can expect similar

Dec 2, 2014 Categories: Investment Strategy

Dynamically manage your Z spreads? For how much longer?

Dynamically manage your Z spreads? For how much longer? An increasingly common feature of liability hedging portfolios has been the smart use of different types of interest rate and inflation exposures. It is possible to hedge liability interest rate and inflation risk using gilts and index linked gilts or combinations of interest rate and inflation

Nov 27, 2014 Categories: Investment Strategy, Liability Hedging


Last week, my colleague Sorca Kelly-Scholte posted on the publication of the PPF ‘Purple Book’. In particular, Sorca highlighted the extent to which asset de-risking appeared to have slowed down based on asset allocation trends. As I read the same publication, I was caught by a different chart. On page 91 of the Purple Book,

Nov 14, 2014 Categories: Liability Hedging

3 things to bear in mind when thinking about leverage

From time to time, I get asked, “What is the right level of leverage for a derivative based liability hedge?” My answer is always the same, “It depends”. I know that doesn’t sound very helpful, but there are a number of good reasons why the decision needs to be specific to each pension scheme. Typically

May 14, 2014 Categories: Investment Strategy

A language lesson at the Pensions Workshop

We recently hosted the first 2014 quarterly workshop for UK pension funds. It was a pleasure to see so many clients and friends at the Cafe Royal.   Using the wonderful tool at, I thought it would be fun to create a Wordcloud from the presentation materials. The results certainly seem to fit with

Feb 20, 2014 Categories: Investment Strategy

BOE Inflation Report: No reason for pension funds to change course

In its latest inflation report published yesterday, the Monetary Policy Committee of the Bank of England (MPC) finally catches up with economic reality. Upward revisions regarding expected economic growth and employment are accompanied by downward revisions on expected inflation. However, that does not mean the MPC is about to change course on monetary policy and

Feb 13, 2014 Categories: Investment Strategy

Real yields – 10 years below 2%

It has now been 10 years since the last time the real yield on the 30 year index linked gilt closed above 2%.  The 2030 index linked gilt closed at 2.07% on 11 December 2003, it fell below 2% the following day and the 30 year bond has never seen this level again. Real Yield

Dec 18, 2013 Categories: Investment Strategy

The future’s bright..the future’s a 30 year ultra long gilt

Today, a new UK ultra long gilt future launched on NYSE LIFFE. This is a future on the 30 year gilt, with UKT 3.25% 2044 gilt currently being the cheapest to deliver (CTD) or reference bond. This is good news for pension schemes and investors looking for liquid exchange traded long-dated interest rate derivatives. Currently

Nov 25, 2013 Categories: Investment Strategy
Russell Investments Wire blog - DMO Update

Don’t mind if I do!

Today, the government borrowed 5 billion pounds for 55 years at an interest rate of inflation plus 0.137%. While clearly this is a good deal for the government, it is also a good thing for pension schemes. As I said last week in my blog “Three cheers for the DMO”, the Debt Management Office (DMO)

Sep 24, 2013 Categories: Investment Strategy


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