Editor’s Letter

The Federal Reserve responded to the financial crisis of 2008 with extraordinary monetary intervention and policy measures that have resulted in persistently low interest rates. We begin this issue of The Journal of Fixed Income with an article by J. Benson Durham exploring hypotheses regarding term premiums. Implications include meaningful compensation for bearing duration risk. Then, Xiaoxia Ye provides historical evidence of the dynamics of market expectations, term premia, and the impact of recent unconventional U.S. monetary policies.

In the next article, Phelim Boyle and Stephen Szaura examine the impact of leverage on the expected return and risk of closed-end bond funds, with an emphasis on the distinction between funding risk and credit risk. The auction-rate-market freeze dramatically exposed the rollover risk in the typical strategy of borrowing short and investing long. In the following article, Jon Fulkerson, Susan Jordan, and Denver Travis analyze bond ETF cash flows and their relationship to return chasing, investment styles, short interest, fund size, expense ratios, premiums, and discounts. Interestingly, the authors show that investors earn 30 basis points per month through timing of bond ETF sales.

Finally, Florian Kiesel and Dirk Schiereck investigate Standard & Poor’s and Moody’s ratings announcements and find that they are less important to the bank-based German market.

We hope you enjoy this issue of The Journal of Fixed Income. Your continued support of JFI is greatly appreciated.

TOPICS: Fixed income and structured finance, fixed-income portfolio management, portfolio theory

Stanley J. Kon

Editor

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