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Today's Most Dominant Risk Factor

All asset classes are currently being driven by central bank policy measures, and understanding the risks are critical for portfolio construction, says PIMCO's Vineer Bhansali.

Shannon Zimmerman: It's a very political season, so let's backup a little bit and talk about monetary policy and policy in general. You think of that as a risk exposure. How do you go about analyzing that and having a view into something that can be so remarkably unpredictable?

Vineer Bhansali: It's very interesting. Over the last four years, the policy risk factor has evolved from just being monetary policy to just policy in general. Four years ago you could have looked at what the federal-funds rate was or what the pricing of eurodollar contracts was, and say, what is the Federal Reserve supposed to do? And quantitatively you could have proxied the policy risk factor with, let's say, the fourth or eighth eurodollar futures contract implied rate.