Tactical Trading of Bonds Using Interest Rate Indices

24 Pages Posted: 5 Sep 2015

See all articles by Patrick Beaudan

Patrick Beaudan

Northern Trust Corporation; Emotomy

Date Written: September 3, 2015


In this paper we construct early-warning trading indicators for bonds and test their behavior over the past 50 years across a range of bond maturities and credit risk. The indicators are tested in periods ranging from 1962 through the summer of 2015 using bond mutual funds and ETFs, as well as on fixed-income sectors that include long-term Treasuries, senior-secured bank loans and corporate high-yield debt. We find that indicators built from publicly available interest-rate index data hold sufficient information to allow investors to identify periods in which bonds historically experienced their worst losses, including 1962 through 1981, 1994, early 1996, 1999 and mid-2013. We also show that these indicators can be used as hedges against rising interest rates without necessarily generating high trading turnover.

Keywords: Tactical trading, Trading indicators, Relative Strength Indicator, Interest Rate Hedging, Tactical trading of bonds, Bond trading, Risk parity, Beta investing, Bond indices, Trading bond indices

JEL Classification: C15, C50, C40, C53, E47

Suggested Citation

Beaudan, Patrick, Tactical Trading of Bonds Using Interest Rate Indices (September 3, 2015). Available at SSRN: https://ssrn.com/abstract=2655721 or http://dx.doi.org/10.2139/ssrn.2655721

Patrick Beaudan (Contact Author)

Northern Trust Corporation ( email )

50 South LaSalle Street
Chicago, IL 60603
United States
415 839 5239 (Phone)

Emotomy ( email )

580 California Street
San Francisco, CA 94104
United States

HOME PAGE: http://www.emotomy.com

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