AlphaSimplex Exits Short Bet Against US Bonds After ‘Epic’ Market Shift

AlphaSimplex Group’s Kathryn Kaminski says her firm closed out a more than two-year short bet against US bonds, with its model signaling that it’s starting to become a time to buy as the market emerges from its worst rout in decades.

“Trend signals have finally turned long,” Kaminski told Bloomberg Television in an interview Thursday. “I think this is an epic signal for the market because we have been short for nine quarters. This has been one of the longest shorts in trend following history, over the last twenty to forty years.”

This shift comes after bonds rallied strongly in the last two months of 2023 as traders stepped up bets that the Federal Reserve will start cutting interest rates this year as inflation and economic growth continue to slow. That drove Treasuries to a small annual gain following deep back-to-back losses in 2021 and 2022 as inflation surged and the Fed tightened monetary policy aggressively.

“This is important because it signals the end of the tightening cycle and it suggests we are going through a regime change and that we need to start looking at the next phase of the bond market,” said Kaminski, who in early November had said the short bond trend signal was weakening but hadn’t ended. “And for me, that’s looking for a steeper yield curve, and I’m trying to think about what is going to be the catalyst for that as the next phase of this phase.”

AlphaSimplex’s public mutual — the Virtus AlphaSimplex Managed Futures Strategy Fund — returned about 36% in 2022 as the bond market tumbled. But it lost about 10% in 2023 after the late-year rebound, according to the firm’s website. AlphaSimplex was acquired by Virtus Investment Partners Inc. last year.

Ten Year Treasury Yields Have Fallen Sharply Since October