The compression of investment returns has posed a challenge to investors in recent years. Successive rounds of quantitative easing have driven a search for yield, asset substitution and, more recently, the advent of negative yields across much of the sovereign bond universe. These effects have depressed available returns from a broad range of strategies. This return compression, from which carry strategies have not been exempt, has led investors to accept ever riskier strategies to exploit available sources of return. These developments have also led to an increase in other forms of risk within portfolios, usually in the form of correlation risk, credit risk, directional risk, or combinations of these. How can we assess the situation, and what are the prospects for carry strategies?
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