Bond Strategy based on Goverment bonds

[Korving99]

Is it possible to add a Bond strategy based on government bond to reduce the volatiliy?

[Frank1 Grossmann]

Do you mean international Governement Bonds of different durations?

[sean_ca]

I think we have a challenge here. As the interest rate is so low and possibly towards negative, is the treasury bond such as TLT or using TMF still an efficient hedge? We saw that it didn’t work when the liquidity dried in March. But even when liquidity is not an issue will it still be working in the super low or negative interest rate environment? Appreciate all inputs. Thank you.

[Korving99]

Dear Frank,

I mean different duration.

Willem

[Frank1 Grossmann]

If you go to our Hedge strategy https://logical-invest.com/app/strategy/hedge/hedge-strategy and then go down to Allocations by strategy, then you see that this strategy is composed by a defensive Treasury bond strategy and a Gold strategy.
Here is the link to the Treasury substrategy: https://logical-invest.com/app/strategy/treshedge/treasury-hedge
You can invest also only in this strategy which contains only defensive bonds in contrast to the Bond Rotation Strategy which also invests in equity like bonds.

[Frank1 Grossmann]

I think even with very low or slightly negative interest rates, TLT or TMF are still an efficient hedge because of their negative correlation to equity. But there may be long periods where they will not perform well, so we really need strategies which adapt Treasury allocation to the market. However because of negative correlation it is most of the time the better hedge than going to cash

[sean_ca]

Thanks, Frank. Not sure whether you did some research on those countries that have had negative interest rates for years such as Japan. What is the situation of their treasury bonds used as hedging?

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