Short-extension strategies now have an extension of their own – into the world of fixed income investing.  In a paper that sounds reminiscent of this one on fixed income 130/30 by Prudential and this webcast on fixed income portable alpha by Morgan Stanley (AAA dossier sign-in required), Baring Asset Management reiterates that 130/30 isn’t just for the equity crowds anymore.  After a dearth of news on fixed income 130/30 since the spring, we’re glad to see it back in the daylight again.

According to HedgeWeek, Toby Nangle, Barings’ director of fixed income management says:

“Most of the debate around 130-30 strategies has, up to now, been focused on the equity side. However, the sources of excess returns and the potential benefits in 130-30 fixed-income investing are quite different from the equivalent equity only mandates.”

Although the markets are different, the primary rationale behind fixed income 1X0/X0 is the same as it is for equities: to enable over-sized negative bets in smaller markets (what the report calls “inter-market spread positioning”).  Other sources of fixed income alpha mentioned in the report include:

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