Managed Futures to find a Hero in 10yr Notes?

Managed Futures could sure use a good outlier move from somewhere.  They are roughly even YTD according the Newedge CTA index, and just about everyone is holding out for a hero til the end of night (in this case the year). In more scientific language, managed futures has been waiting for a catalyst to jump start performance. So who is this knight in shining armor? It just might be the bond market, spurred on by 10 Year Treasuries.

Business Insider rolled out a new article, alerting the potential of an “ugly” Treasury bond market with the headline, “The Treasury Bond Market Could Get Ugly Between Now And September 19.”  Basically, summer’s coming to an end, and traders are coming back into market that looks ripe for change.

To flesh out their theory, they look at their version of 10 Year Treasury volatility called the “Move Index” (Merrill Option Volatility Estimate), and a drop off in trading.

10 Year Treasury Yield and MOVEChart Courtesy: Business Insider
(Disclaimer: Past performance is not necessarily indicative of future results.)

Now notice the decline in trading the past couple of weeks.

Trading of 10 Year TreasurysChart Courtesy: Business Insider
(Disclaimer: Past performance is not necessarily indicative of future results.)


So what is all this the recipe for? BofA Merrill Lynch says a rise in risk.

“A seasonal analysis of our MOVE Index (aka the Merrill Option Volatility Estimate) says that fixed income implied volatility tends to jump sharply during August. With the recent range in U.S. Treasury yields growing mature and poised to complete (we continue to target 2.85%/2.95% in US10s), the potential for fixed income implied volatility to hold to its seasonal norms is too high to be ignored…..Expect one more [Fixed Income] volatility bump [in August] before a seasonal lull.”

We’ve talked before about how managed futures love the bond market, and while there are those that don’t believe a sell off in bonds would benefit managed futures the same as the 40 years of run ups have, a trend is a trend – be it up or down – and managed futures could sure use a sustained trend right about now.


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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

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Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.