Bond managers turn to derivatives and ‘Facebunds' trade

Strategic bond managers are upping their use of derivatives as liquidity issues, dislocated pricing structures and cheaper trading opportunities transform how they manage their portfolios.

OMAM’s Stewart Cowley is among those who have been increasing derivatives usage as fears over the future of the eurozone drive core government bond yields to record lows, and credit market liquidity becomes stifled. “We have increasingly gone to the derivatives market because that is where the liquidity is. A bond only prices when you get a buyer and a seller. You can get long periods of time where nobody does anything. Derivatives are becoming more representative of the true situation than the credit markets,” he said. Cowley used derivatives to put on a new trade last week, in his G...