Maggie Lake Talking Markets Episode 53: Is The Market Mispricing Risk Again? With Nancy Davis.
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May 16, 2025 Nancy Davis, the founder of Quadratic Capital and a former Goldman Sachs trading head, dives into the shifting dynamics of the bond market. She discusses how traditional correlations no longer hold, fueled by rising U.S. deficits and potential changes in foreign investment in Treasuries. Nancy highlights the advantages of the asymmetric curve steepener strategy for IVOL, marking it as a prime opportunity since 2019. She also shares her journey balancing trading with motherhood, showcasing her enduring passion for financial markets.
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Interest Rate Volatility Is Low
- Interest rate volatility is unusually low despite fiscal uncertainties.
- This makes it an attractive moment to consider volatility-related investment strategies.
Fixed Income Often Short Volatility
- Many investors are unknowingly short fixed income volatility due to mortgage prepayment option risk.
- This embedded short volatility risk is often overlooked but important for portfolio diversification.
IVOL Complements Core Fixed Income
- Core fixed income benchmarks lack inflation protection and embed short volatility from mortgages.
- Adding IVOL with TIPS and long options helps address these gaps and add diverse inflation exposure.