Bond Rotation “Sleep Well” and interst rates

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Bond Rotation “Sleep Well” and interst rates 2017-03-03T15:29:57+00:00
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  • Jacques Fernandez
    Participant
    Post count: 2

    Hi,

    Interest rates tend to have an inverse relationship with bond prices.
    The backtest of the “Bond Rotation strategy” runs from 2008 when the policy of the FED was to keep low/lower the interest rate.

    Today, the FEB policy is to start to rise the interest rate.
    Do you think the “Bond Rotation Strategy” will perform the same in the futur as your back test (knowing that past performance does not guarantee future results)?
    Will the “Bond Rotation Strategy” still be a “sleep well” strategy in a period of rising iterest rate?

    Thanks a lot

  • Alexander Horn
    Keymaster
    Post count: 383

    Jacques, thanks for the question. Generally the Bond Rotation is designed to perform also in rising environments. By including diverse instruments with convertibles (equity driven), high yield bonds, treasuries and bonds there will always a positive trend in any environment.

    The worst time for trend-following strategies is like in the current time where both equities and fixed income is driven by FED statements and different interpretations, thus a choppy market without any clear trend.

    Interesting to me is the current discussion that the FED is trapped by the USD strength and not overall rosy economic data, thus maybe having to delay the rise and make it much more gradual than anticipated. Just the last days it seems to me Yellen was starting to hint at that.

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