Bonds Fake Out Managed Futures Again…

Bond prices have been high on our radar for a while. Back in March, we looked at the relationship between spikes in bond yields and managed futures, pointing out that the recent short-term reversals have not been what the asset class needs. If yields go consistently higher, bonds ought to go lower, and we’ve been waiting for the big bond reversal for some time now. There are several reasons why managed futures would enjoy the trends to be had on the downside in bonds, but we’ve had no choice but to wait patiently for the trend to arrive. Trend followers have been jumping on each little move to the downside in the hope that it represents the start of a new sustained down trend (as rates go up).

Well, nearly two months after our last look, we can say that managed futures were wrong once again on the bond short side (actually, we could have said it in early April). You can see from the chart below that the most recent head fake to the down side is the 4th to 12th (depending how big of a down move you consider to be significant) such move to end in a reversal to the upside:

Chart courtesy Finviz.com. Disclaimer: past performance is not necessarily indicative of future results.

Will managed futures programs learn their lesson and stop trying to go short bonds?  Don’t bet on it.  There may be some managers who tweak their models to ignore the shortside or otherwise slant their programs to the long side in bonds – and investors should view those with a healthy dose of skepticism and worry about such “curve fitting.” If a manager’s trading strategy looks for a big win on the downside in bonds, but the recent slump has made them cautious, they may be falling victim to style drift.

For all others, they are likely not even looking at the failed down trends as failures. The hallmark of a trend following model is taking small but frequent losses in exchange for rare but large gains. So, such programs will keep swinging for the fences on the short bond trade when it comes up, despite their recent strike out and being in a 0 for 20 or so hitting slump since the financial crisis. No matter their recent history, such programs believe the next swing could be the home run – and dare not let one go across the plate without giving it their best swing, hopeful that one day soon they’ll finally get that perfect pitch…

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  1. […] no, we’re not about to call a top in the US bond market. The generational bull has not been kind to such efforts in the past. But that doesn’t mean others aren’t still going to trot out their […]

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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