Rising Duration Exposure Presents a Challenge to Policy Makers
With the fall in bond yields and reduced market volatility on the back of accommodative monetary policy, investors may be expected to naturally increase their duration exposure in order to find attractive yields or balance the risk of growth-oriented assets in their portfolios.
Our chart shows how this dynamic looks to have played out for two important types of investors, macro hedge funds (HFs) and commodity trading advisors (CTAs), by looking at the absolute beta (1-month rolling basis) of these strategies to the 10-year US Treasury future, averaged over each year.
As we can see, starting in about 2013, these investors seem to have significantly increased their absolute exposure to bonds. This high sensitivity to the bond market presents a challenge to policy makers as small movements in interest rates will have more amplified effects than in the past. The end of 2018 and early 2019 has shown that normalising monetary policy may be more difficult than central bankers expected, as the seeds they planted with very accommodative (and necessary) measures begin to sprout.
Unigestion, based on Bloomberg data as at 27 March 2019.
The information and data presented in this page may discuss general market activity or industry trends but is not intended to be relied upon as a forecast, research or investment advice. It is not a financial promotion and represents no offer, solicitation or recommendation of any kind, to invest in the strategies or in the investment vehicles it refers to. Some of the investment strategies described or alluded to herein may be construed as high risk and not readily realisable investments, which may experience substantial and sudden losses including total loss of investment.
The investment views, economic and market opinions or analysis expressed in this page present Unigestion’s judgement as at the date of publication without regard to the date on which you may access the information. There is no guarantee that these views and opinions expressed will be correct nor do they purport to be a complete description of the securities, markets and developments referred to in it. All information provided here is subject to change without notice. To the extent that this page contains statements about the future, such statements are forward-looking and subject to a number of risks and uncertainties, including, but not limited to, the impact of competitive products, market acceptance risks and other risks.
Data and graphical information herein are for information only and may have been derived from third party sources. Although we believe that the information obtained from public and third party sources to be reliable, we have not independently verified it and we therefore cannot guarantee its accuracy or completeness. As a result, no representation or warranty, expressed or implied, is or will be made by Unigestion in this respect and no responsibility or liability is or will be accepted. Unless otherwise stated, source is Unigestion.
Past performance is not a guide to future performance. All investments contain risks, including total loss for the investor.