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Momentum Models Support Long Bund vs UST Trade
- By Bilal Hafeez and Ben Ford
- 2 min read
When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Market Implications
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- Momentum models support Mustafa and Henry’s view that there is value in being long 10Y Bunds vs USTs. They also support Ben’s view that there is little reason to turn short EUR/SEK yet.
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When evaluating the performance of our momentum models we are considering the average performance across the one-, three-, and 12-month momentum models.
Market Implications
- Momentum models support Mustafa and Henry’s view that there is value in being long 10Y Bunds vs USTs. They also support Ben’s view that there is little reason to turn short EUR/SEK yet.
Summary
- FX Momentum models (+0.2% WoW) outperformed equity (-0.7% WoW) and rates (-0.3% WoW) momentum models over the past week.
- However, a three-month time frame reveals the opposite: equity (+3.9%) and rates (+2.1%) momentum models have outperformed FX equivalents.
- Since our last update, momentum models have shifted bullish on the Nikkei, less bearish on Bunds, and heavily bullish on USD/JPY and EUR/SEK.
Latest Signals
Equity momentum models are signalling Nikkei outperformance as they turned heavily bullish on the index, while they pared S&P 500 bullishness and flipped bearish on the DAX (Chart 1).
Meanwhile, rates momentum models have shifted less bearish on bunds and remain heavily bearish on US rates which is in line with Mustafa and Henry’s view to be long 10Y Bunds vs UST (target: 150bps). Within rates, our PCA model has 13 trades flagged as of earlier this week.
Turning to FX, momentum models have returned heavily bullish on USD/JPY and EUR/SEK – Ben sees no reason to turn short EUR/SEK, yet. Meanwhile, they pared GBP/USD and USD/CAD bullishness. Looking at the cross, Ben thinks GBP/CAD can trade lower over the next six months. Meanwhile, our other FX models are supportive of Bert’s LatAm FX carry trade and Ben’s belief that EUR/CHF can trade higher in the coming months.
Model Performance
FX momentum models (+0.2% WoW) were the only ones to deliver a positive return over the past week, while equity (-0.7% WoW) and rates (-0.3% WoW) underperformed. In contrast, over a three-month time frame, equity (+3.9%) and rates (+2.1%) momentum models have outperformed FX momentum models (-0.4%).
*The basic strategy is to use returns (lookback windows) to give buy/sell signals. So, if the US stocks are up over the past 3 months, you buy, otherwise, you sell (note I use excess returns).