As a well-known concept to practitioners and academics, the carry factor has been leveraged in the currency markets for decades. With the understanding of such FX carry trades becoming established, academic publications have explored this concept cross-markets and showcased evidence of the carry premium in the fixed income asset class.
The global sovereign debt market is one of the largest asset classes in the world, yet fixed income markets have typically lagged other asset classes in relation to ESG integration activities. Sovereign debt investors are exposed to a range of climate risks that are typically not well understood or incorporated in the investment process.
By combining the carry factor with a climate theme in fixed income government bond index products, it allows sovereign debts investors to lower their portfolio’s overall climate risk, while optimizing carry and roll down.
The index series comprises:
- FTSE Climate CaRD WGBI
- FTSE Advanced Climate CaRD WGBI
- FTSE Climate CaRD EGBI
- FTSE Advanced Climate CaRD EGBI
The FTSE Climate Risk-Adjusted Carry and Roll Down (CaRD) Government Bond Index Series offers a solution that seeks to reflect a targeted exposure to the sovereign bonds in the underlying index by applying carry and roll down optimization, as well as by incorporating a tilting methodology that adjusts index weights according to each country’s relative climate risk performance.