As part of our daily routine, we stratify every portfolio into yield curve buckets versus the index to exactly where our yield curve lies. We manage our portfolios’ yield curve positioning to take advantage of shifts and twists in the yield curve. For example, in recent years we have barbelled our portfolios to take advantage of a flattening yield curve and bulleted our portfolios to take advantage of a steepening yield curve.
We primarily stress test all securities with embedded options such as callable agencies and agency-guaranteed mortgages. From time to time, we will run a stress test on certain client portfolios. In general, we create certain interest rate and yield curve scenarios and then compare total returns for a one-year horizon versus the index.
ESG factors are part of our investment philosophy and process and incorporated in our scenario analysis process.