Stress testing for the unthinkable: Preparing fixed income portfolios for extreme events
In today’s fixed income markets, traditional risk measures often fall short when tail events, or extreme, low-probability events occur. As a remedy, systematic fixed income managers are increasingly relying on stress testing to understand how their portfolios would behave under severe—but plausible—market dislocations.
This white paper examines how leading managers design, implement, and apply stress testing frameworks to prepare for events such as sudden recessions, default waves, rate shocks, and liquidity freezes. It explores scenario construction, key analytical methodologies, and how stress-test insights shape portfolio strategy and risk management.
Get practical guidance on how leading systematic fixed income managers:
- Identify and characterize tail risks across credit, rates, liquidity, and cross-asset markets.
- Construct and implement both historical and hypothetical stress scenarios that capture extreme but plausible market dislocations.
- Apply key stress-testing methodologies—including full revaluation, factor-based shocks, cross-asset stress frameworks, simulation-based techniques, and reverse stress testing.
- Interpret stress-test outputs to assess vulnerabilities, understand nonlinear impacts, and evaluate funding, liquidity, and default dynamics under pressure.
- Integrate stress-test insights into portfolio construction, hedging decisions, risk oversight, and long-term strategic planning.
Discover how leading systematic fixed income managers are modeling extreme scenarios and strengthening portfolio resilience, so you can be prepared before the next crisis hits.
