Government Bonds – Page 2 – Harlyn Research LLP

Capitulation and the rule of 35

Thursday, April 18th, 2019

Managing risk on the downside

Equity bears are capitulating. The priority is to protect their portfolios from further underperformance by getting closer to their benchmark equity weight. Our models have always shown that the worst sample periods for our process are between 29-35 weeks. The behavioural explanation would be that fund managers are allowed to be wrong for two quarters in a row, but not for three. Cutting a losing position during the third quarter of the mistake tends to be more damaging than doing it early in the second.

Filed under: Categories: Diversification, Global Equities, Government Bonds, Harlyn's Process, Market Timing

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Straws in the Wind

Wednesday, November 21st, 2018

A time for observation not forecasts

Forecasting with precision all the components of a bear market is very difficult. Observing the increasing number of signals which point in that direction is much easier. These range from US high yield to Eurozone government bonds and US and European equity strategy. It’s not all bad news. There are some positives, such as the potential for a surprise in UK Equities, and a message to buy duration in US Treasuries. However, the overall message from these straws in the wind is very powerful.

Filed under: Categories: Corporate Bonds, Equities, Eurozone, Government Bonds, United Kingdom

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Europe Can Set the Agenda

Wednesday, August 1st, 2018

EM assets are already attractive in euros

Because of the strong dollar, European investors have a chance to buy emerging market exposure without competition from US investors. EM Bonds already offer attractive risk- adjusted returns when measured in euros or pounds. There may also be an opportunity in selected equity markets like Mexico, India and Israel, even if the overall index is unattractive because of its large exposure to China and the threat of a trade war.

Filed under: Categories: Emerging Markets, Equities, FX rates, Government Bonds

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Some Relief at Last

Wednesday, June 13th, 2018

US Treasuries may bounce in Q3

The risk-adjusted returns of all parts of the US Treasury curve are set to improve over the summer. Our models suggest that investors may be revising down their estimates of the size and scope of future rate hikes from the Fed as evidence mounts of a slowdown in Emerging Markets. This would be consistent with a further flattening of the yield curve and less pressure on spreads in Investment Grade. High Yield already offers the best risk-adjusted returns in US credit. The wild card remains EM Sovereigns; contagion is a real risk, and credit quality may not be an adequate defence.

Filed under: Categories: Corporate Bonds, Government Bonds, Yield curve

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My Enemy’s Enemy

Thursday, May 17th, 2018

Bond volatility not necessarily bad for equities

10-year Treasury yields have moved decisively above 3% and there is much excitement about what this could mean for equities. We prefer to look a bond volatility as the basis for comparing the two asset classes. Based on its historic relationship with the slope of the US yield curve, bond volatility is still below its predicted value, while equity volatility is in line with it. The hurdle rate which US Equities have to beat in order to be risk-efficient is therefore too high and would fall if bonds experienced a bout of volatility.

Filed under: Categories: Government Bonds, Volatility, Yield curve

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If You Have to Own Bonds…

Wednesday, January 24th, 2018

This is how to trade them

All our tactical asset allocation models are close to maximum underweight in fixed income. If you have to have some exposure, our models are clear that the best overall strategy is momentum with a bias towards risk-aversion. Other strategies tend to lead to lower returns and larger drawdowns over the long term.

Filed under: Categories: Corporate Bonds, Government Bonds, Momentum vs mean reversion

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The Great Volatility Slide is Over

Thursday, January 11th, 2018

It’s still very low, but it will start rising soon

We think our volatility index has stopped falling, though we can’t certain just yet. Once this has happened, it will probably take 10-11 months for it to return to its median level, based on past experience. All other things being equal, median volatility will require most investors to have a benchmark weight in equities, as opposed to their current overweight.

Filed under: Categories: Global Equities, Government Bonds, Risk-Adjusted Returns, Volatility

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The Anti-Forecast

Wednesday, November 29th, 2017

Current conditions trump medium-term outlooks

Investors don’t need to read the outlooks for 2018 to know that they are not being adequately rewarded for holding supposedly safe assets like US Treasuries. They are effectively forced into US and international equities, because the returns generated by traditional fixed income or alternative assets are unattractive in risk-adjusted terms.

Filed under: Categories: Government Bonds, Risk-Adjusted Returns, Seasonality

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What next for EM?

Thursday, November 23rd, 2017

Structural change and a general underweight

Three key messages for EM equities. (1) We expect to be underweight by early Q1 2018. We are already underweight EM in fixed income. (2) EM equities are not behaving like a single asset class at present. Only specialists should attempt to pick favourite countries. (3) The inclusion of China A shares in the main EM indices will force investors to rethink the way they allocate money, and they will be underweight while they work out what to do.

Filed under: Categories: China, Emerging Markets, Equities, Government Bonds

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Ultra-low Volatility

Wednesday, February 22nd, 2017

But maybe not for much longer

Our global volatility index has just hit a two-year low, but US equities are no longer leading this and are now in a counter-trend, whose strength is disguised by a breakdown in sector correlations. The period of ultra-low volatility is not over yet, but it may not last much longer.

Filed under: Categories: Commodities, Global Equities, Government Bonds, Real Estate, Volatility

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