Why Investment-Grade Bonds Offer an Attractive Hedge

During their recent episode, Taylor, Carlisle, and Tim Travis discussed Why Investment-Grade Bonds Offer an Attractive Hedge. Here’s an excerpt from the episode:

Tim: It’s hard. I don’t know. Whenever I buy puts as a hedge or something like that, which isn’t very likely or maybe I’ll have a client that requests it, it’s hard mentally for me, just because I know they’d cross-

Tobias: Cross spread.

Tim: -run against me. I sell options. And so, buying the put mentally for me is challenging. I do the tail hedging with bonds, more or less, if rates do decline. It’s easier now in this yield environment. It was so hard– I didn’t touch bonds for 15 years really. But now, there’s a lot you can do.

Tobias: So, you buy a government bond, a 10-year or something like that if it gets– [crosstalk]

Tim: Buyback investment grade bonds. Yeah.

Tobias: Yeah. If it gets gnarly and they drop rates, you get a rally in the bonds, so you get some [unintelligible 00:40:58] ballast.

Jake: Ideally, although that didn’t happen in 2022. It went the other way.

Tim: The starting base rate’s important.

Jake: We lost all bond.

Tim: Having a bond latter helps, for sure.

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