[gusta_text vc_id=”text-12810704375d31bf8423f17d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”LIVE MODEL PERFORMANCE RESULTS: EU +5%, US +3%, BTP-BUND +5.5%; RISK MONITORING MEASURES, KEY ROLE IN THIS YEAR’S HIGHLY VOLATILE MARKET“]

THE MODEL PERFORMANCE AND ASSOCIATED TRADES DISCUSSED IN THIS ARTICLE ARE DOCUMENTED IN LIVE SIMULATED TRADING. TRADES ARE SENT IN REALTIME TO THIRD PARTIES AND RECORDED BY AN INDEPENDENT THIRD PARTY. PLEASE READ OUR FULL DISCLAIMER.

[gusta_text vc_id=”text-15698345345da05607444fbd14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The simultaneous trading of the three strategies diversified returns in the first half of the year. Month-on-month returns are as detailed below.”]
[gusta_text vc_id=”text-3274025335f17f53bd7802f16c02932fe4da05607447f8d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In the first half of 2020, we benefited from two proprietary risk measures which prevented the model from entering trades when the market environment was inadequate for the strategies.”]
[gusta_text vc_id=”text-5229092585f16c02932fe4da05607447f8d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”These measures act as a risk manager that steps in when either of two conditions is fulfilled:”]
    1. Volatility Index: the underlying asset’s volatility value is too high relative to its recent behaviour;
    2. the Dysfunctional Index is triggered, which, determines when the market is ‘dysfunctional’ by systematically monitoring the security’s daily price action.
[gusta_text vc_id=”text-15727249355f16c02933042da05607447f8d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”Since the underlying securities enjoy ample liquidity and are exchange-traded, the latter measure is meant to be triggered on rare occasions, in periods of crisis.”]
[gusta_text vc_id=”text-14196000915f16c0e97c193da05607447f8d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”It comes as no surprise that this year these measures were triggered on several occasions on all the securities we cover. Thanks to the monitoring of these risk factors, the strategies were able to produce positive and uncorrelated returns in this year’s highly volatile market.”]
[gusta_text vc_id=”text-16861811775da06aebeca8dd30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”h5″ alignment=”center” sub_groups=”label_text” text=”EU Bond Futures Strategy’s Performance Attribution, +5%“]
[gusta_text vc_id=”text-20244945635da0560744a19d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”Volatility across all European sovereign futures rose dramatically at the beginning of March with market conditions deteriorating quickly. The Dysfunctional Index reached a critical threshold on March 10, signifying that the market environment became incompatible with the strategy.”]
[gusta_text vc_id=”text-12664069055f16caddb3df6da0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The signal lasted until April 16. The chart below illustrates how the index behaved, preventing the strategy to enter any trades during the above mentioned period.”]
[gusta_text vc_id=”text-10480728665f16caddb3e82da0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”Within four weeks we had a complete turn around of positions going from an overextended long market (+20) to an overextended short (-20) as reflected by the Positioning Concentration Index (PCI) below.”]
[gusta_text vc_id=”text-15547778315f16caddb3f0eda0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The PCI indicates any position imbalance in the market. For the Bund future, the PCI flagged an overextended long imbalance, +20, on March 4, and an overextended short, -20, on March 23 (chart below). In both occasions, the markets reversed sharply.”]
[gusta_text vc_id=”text-7507707845f16caddb3f94da0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The positions that mostly contributed to the performance were traded in early March and in June, thanks to two significant shifts in investors’ positioning flagged by the AG Positioning Model.”]
[gusta_text vc_id=”text-1724973325f16caddb4026da0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In February a flight to quality to core markets took the positioning momentum measure to significant levels, triggering long positions for the Bund and the 10Y OAT (February 27 to March 9) as depicted by the chart below.”]
[gusta_text vc_id=”text-4431738665da0560744b50d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In June, an aggressive increase in longs across multiple European sovereign futures triggered long signals for the 10Y OAT, 2Y and 10Y BTPs. The accumulation of long positions has been consistent across the whole month of June and accelerated into month-end. We interpreted the flow detected by the model as the combination of central bank buying and a general need to acquire government bonds ahead of half-year balance sheet closure”]
[gusta_text vc_id=”text-1566097825da07404b9cbcda06aebed667d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”Trading signals triggered in the 10Y OAT, green tiangles (long), red triangles (short)“]
[gusta_text vc_id=”text-15151230625da07404ba493d30461be4936d303cdca1a15d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”In the 10Y BTP, the Risk Measures prevented the strategy to trade the March/April signals (blue circle).“]
[gusta_text vc_id=”text-10134182145da06aebed38fd30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”h5″ alignment=”center” sub_groups=”label_text” text=”US Treasury Futures Strategy’s Performance Attribution, +3%“]
[gusta_text vc_id=”text-14953259265da056074519dd14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The strategy had a strong start in January thanks to a long position in the 10Y T-Note. The Covid-19 issue was initially considered a problem confined to China. According to the model, investors started to react to the news in late January as a major shift into US Treasury notes took our positioning momentum measures to critically high scores. The shift in momentum triggered a long position in the 10Y T-Note in the early stages of a broader global risk-off sentiment move.”]
[gusta_text vc_id=”text-4756371645da06aebed09dd14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In February another influx of longs triggered a new 10Y T-Note position which however was caught wrong-footed as the coronavirus increasingly worrying news was suddenly shrugged off by the market. Similar to the European strategy, the Dysfunctional Index was triggered in March and April, preventing the strategy to trade during this period.”]
[gusta_text vc_id=”text-21278952615f180af3f3cacda06aebed241d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”In June, a major unwinding of 10Y T-Note and US T-Bond was flagged by the Positioning Model (5% and 8.5% respectively). These positions had been likely accumulated during the risk-off period. The strategy put on a short in both the 10Y T-Note and US T-Bond as the sell-off started. In the following 5 sessions, the shift in positioning was pronounced: our Positioning Concentration Index jumped to an overextended short ahead of turning around on June 7. These positions returned about 3% for the strategy in June.”]
[gusta_text vc_id=”text-14577085495da06aebed241d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The Positioning Concentration Index crucially identified major turning points by flagging imbalances in the 10Y and the US Treasury Note.”]
[gusta_text vc_id=”text-10902944745da06aebed667d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”The PCI warns of longs overxtending on Feb 3, and shorts reaching an extreme in March 20 before turning around“]
[gusta_text vc_id=”text-7606494865d30461be4936d303cdca1a15d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”div” alignment=”center” sub_groups=”label_text” text=”The US T-Bond positions reached an overxtended long (+20) on Feb 3, and an overxtended short on March 20 and June 8“]
[gusta_text vc_id=”text-8057943745da06aebed9a5d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”Starting from last month, the model has been reporting a consistent long-term supporting flow for the 2Y T-Note. The strategy is currently running a long position in the 2Y T-Note initiated in June.”]
[gusta_text vc_id=”text-20053290035d30461be46a7d303cdca16f2d14c4955584cccaa13c1ca3acc8725bdfdeacacad7258856c38be650bd19be567519e219b978e887900bb6c157beca89b62fb9a78fb1″ element_tag=”h5″ alignment=”center” sub_groups=”label_text” text=”BTP-Bund Spread Strategy’s Performance Attribution, +5.5%“]
[gusta_text vc_id=”text-878634295da078cbefa5ad14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”The BTP-Bund spread has been volatile and provided several trade opportunities for the strategy. Below is a chart of the AG Italy Risk & Complacency Index (blue line).”]
[gusta_text vc_id=”text-7612844605da078cbefc5ed14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”When the index reaches the green area, the Index is flagging that the market is too complacent towards Italy’s risks providing an opportunity to short BTPs. When the index reaches the red area, it’ s a signal that too much risk is priced in Italian assets providing a good entry level in BTPs, a situation that happened 5 times this year allowing the strategy to profit from a compression of the yield spread between 10Y BTP and 10Y Bund.”]
[gusta_text vc_id=”text-18506959305da0881305e35d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”All signals are reported in the chart below: when the Index is marked in green (the strategy is long BTP vs short BUND, duration weighted); when marked in purple the opposite positions are taken, short BTP vs long Bund. The signals between 20th February and 10th April were not executed due to the market’s volatility.”]
[gusta_text vc_id=”text-17327921215d14bfcb7965ecc8725bde194b978e8878870b6c157beca89b62fb9a78fb1″ sub_groups=”label_text” text=”To find out more, send us an email to team@alphagenesi.com.”]