T. Rowe Price -Wed, 09/04/2024 - 21:52

Why passive flows and inelastic markets don’t mix

Key Insights

  • Deep-rooted issues with passive fixed income investing have caused bond market structure to deteriorate, raising the risk of elevated volatility.
  • Recent academic work hypothesizes that the market is significantly less elastic than previously believed.
  • While this inelasticity has helped inflows to passively managed funds drive prices up, a reversal of flows to passive products would have the opposite effect.

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