Rising Duration Exposure Presents a Challenge to Policy Makers

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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.

Average Absolute Beta to US 10-Year Treasury Future

Average Absolute Beta to US 10-Year Treasury Future

Unigestion, based on Bloomberg data as at 27 March 2019.


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