Highlights

  • RIP long bond trend?: Towards the end of 2020, the bond trend began to weaken substantially and finally turned net short in February 2021 as markets grew more concerned over rising longer-term rates.
  • A powerful reflation trade: Without equity returns the reflation factor is even more pronounced across different time periods. In the post-Covid-19 crisis recovery, the factor has been particularly strong.
  • Shift from monetary to fiscal policy: After the COVID19 crisis, markets have begun to sing a different tune. From a trend perspective, this means that bonds seem to exhibit less negative correlation to equities and seem to cushion the downside in equities less than in previous years.
  • Modern monetary theory: If inflation were to occur, commodities and other assets would likely experience big trends. In fact, using longer-term historical data, Greyserman and Kaminski (2014) showed that trends were stronger in inflationary and rising inflation environments.

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