Twenty Interest Rate Spikes (and Counting)

We’ve been waiting for a rise in interest rates for years… especially in the world of managed futures, which tend to do well during moves in interest rates. Unsurprisingly, we’ve been watching the recent moves very closely. That’s why a post on The Big Picture caught our attention – showing that despite rates moving higher by 20% recently, this move is barely a blip on the chart of the multi-decade bull run in bonds (rates lower). The piece includes a nice table of such bond “spikes” back to January of 2008, including the magnitude and duration of the spikes. We love tables like that; it gives us a good opportunity to see how managed futures lined up during those same periods.

So how did they do? We re-created the chart by David Rosenberg and added columns for managed futures (Newedge CTA Index) and stocks (S&P 500).

Past performance is not necessarily indicative of future results.

Interestingly enough, while many managed futures participants are eagerly waiting for the day when rates really start to move higher (yes, there is a sliver of the world out there who wouldn’t mind seeing rates go higher), spikes in rates over the past few years have not been kind to managed futures.

What’s going on here? Well, the trend in bonds over the last few years (actually, over the past 40 years) has been up (rates down), and spikes in rates represent reversals of that predominant trend. Managed futures, on the whole, don’t like these reversals- and especially don’t like them when they only last 21 days on average, as these have. You see, a systematic trend following program isn’t just looking at when trends start, but also must assess when they end. At least half the magnitude and/or duration of these spikes were likely the exit signal for CTAs to get out of long bond positions, leaving just a portion as an actual move to be followed.

Problem is, with the relatively short duration of these spikes, as soon as systematic models shifted their positions; the spike had run its course, leaving managed futures programs losing out on the reversal from their long position, and causing losses on the new short position when the movement didn’t last. While quick, sharp moves don’t tend to work in managed futures’ favor, if/when a spike continues in that direction – watch out… we could see some of that outlier performance managed futures longs for (or shorts for, in this case).

Write a Comment

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.

logo