Carry and rolldown: the hidden cost of waiting to hedge

It may seem counterintuitive, but it is possible to invest in low yielding assets and generate attractive excess returns. Consider, for example, Japanese Government Bonds (JGBs). Since 2002, 10 year JGBs have yielded a measly 1.22% p.a., but their total returns exceeded yields by almost 1.00% p.a. with a volatility of just 3.88%. This equated … More Carry and rolldown: the hidden cost of waiting to hedge