Relative Strength of 10-year and 30-year Treasuries as Regime Indicator
May 20, 2014 - Economic Indicators, Strategic Allocation
Does the relative performance of 10-year U.S. Treasuries and 30-year U.S. Treasuries offer a useful risk-on/risk-off regime change signal? In their February 2014 paper entitled “An Intermarket Approach to Tactical Risk Rotation Using the Signaling Power of Treasuries to Generate Alpha and Enhance Asset Allocation” (the National Association of Active Investment Managers’ 2014 Wagner Award third place winner), Michael Gayed and Charles Bilello examine whether the relationship between the monthly total returns of the 10-year and 30-year Treasuries usefully indicate when to hold (or tilt toward) Treasuries versus stocks. They reason that informed investors migrate toward intermediate-term (long-term) Treasuries when they anticipate strong (weak) economic conditions. Therefore, the relative strength of 10-year and 30-year Treasuries signals when to take an aggressive or defensive investment posture. Using monthly total returns for 10-year and 30-year Treasuries and for the broad U.S. stock market during April 1977 through December 2013, they find that: Keep Reading