UBS Interest Rate analysis gets boost
The LIM community is a community of professionals who pride themselves on solid thinking and high quality analysis, and I love it when I can bring you real life examples of how the Market Information Machine supports better and more precise analysis, and helps our clients do quality research faster than any other technique or tool available today. Hats off to (UBS) interest rate strategist, William O'Donnell, who correctly speculated that the convergence of the 200 day moving average for 2 year and 10 year bonds (which recently happened at 4.83%) was an extremely rare event likely to result in 2y-10y yield curve that is sharply steeper six months later.
With the assistance of LIM's help desk and a query to XMIM, he was able to confirm the rarity of this event, noting in his October 19 morning commentary that it has happened only 5 times in 20 years, and each time it has happened, yield curves did indeed rise sharply over the following six months. Based on this result, Bill was able to confidently offer his customers trading advice backed by the facts and tied to specific events to watch for. Bill was so impressed, he gave LIM a shout out in the UBS Investment Research letter, for which we are extremely grateful, and we also compliment Bill for this creative use of XMIM to improve his client advice.
The following is an excerpt from the UBS Global Fixed Income Research, US Rates Perspective report:
"We mentioned how the 200 day moving averages in 2yrs and 10yrs have converged (at 4.83%) which we thought as a rare event. The folks at Logical Information Machines (LIM) ran their data and found that we’ve had five instances in the last 20 years (yesterday included) where the two moving averages have closed within 1bp or so of each other. The last time this occurred was back on April 4, 2001 and in each of the four previous instances, history showed that the 2y-10y yield curve (cash) was invariably steeper six months after the convergence (no surprise). We do model for a steeper curve going into next year’s expected rate cuts but would not enter the trade until . . . "
I've redacted the specific advice that Bill gave to protect UBS's copyright interests, but if you subscribe to UBS research, you can read the rest of what he had to say in the October 19 bulletin. When you need to confirm a hunch and predict likely future outcomes based on historical data patterns, XMIM clearly leads the market. Thanks to Bill for sharing this real world idea and example with us.
