PIMCO examines whether trend following can still work in rising rate environments, challenging the view that falling yields solely drove managed futures returns Using data from 1962 to 2013, the authors show trend strategies remained profitable when Treasury yields climbed 100 bps or more.
Trend-Following Through the Rates Cycle
PIMCO
Graham Rennison
Research
8 Pages
Key Takeaways
Rising Rate Resilience: During 12 years when five year Treasury yields rose at least 100 bps, the trend following model still generated average excess returns of 4.5%.
Diversified Return Sources: From 1977 through 1981, five year Treasury yields climbed 827 bps, yet the hypothetical trend strategy produced roughly 34% cumulative excess returns.
Equity Whipsaw Risks: In 1994, five year yields surged from roughly 5% to nearly 8%, while the trend following model posted a negative 4.2% annual excess return.
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