Getting her start in 2001 as the TIPS products was just a few years old, Gargi Chaudhuri has been a market participant in inflation-linked securities for more than 2 decades, a time over which she’s developed expertise in a product that has become front and center to the unique risk dynamics of 2022. Our conversation first explores the evolution of the TIPS market, from its early days where even a small notional trade could impact pricing to today when large institutions are assuming and reducing inflation exposures and, of course, the Fed is non-trivial presence in the market. In this context, we discuss the relative prices of TIPS and nominal bond prices and the real yields and break-even levels derived from them.

Here, Gargi points to potential areas of distortion, citing the rapid rise in 10 year real yields from -100bps at the start of 2022 to as high as 80bps in early June. While disruptive, this repricing does pave the way for finding value in the asset class. We next discuss Gargi’s work at Head of Investment Strategy within IShares at BlackRock. With the mantra that “staying invested is the North Star”, she walks through the exposure shifts that can reduce volatility and drawdowns during bear market periods. Here, she discusses using “min vol” as well as other defensive sectors like healthcare that have good pricing power amidst the regime of elevated inflation.

We finish by exploring the topic of decision-making under uncertainty and hearing what Gargi is more and less confident about. While feeling good about the various frameworks her team has built to understand inflation and flows, she is less sure about the changing Central Bank reaction function to incoming data.  I hope you enjoy this episode of the Alpha Exchange, my conversation with Gargi Chaudhuri.