Along the same lines: Discovered that changes in yield curve are hurting my performance. After some testing and based on how yield curves affect my models, I find that, when rates are below 6%, I am generally long bonds when the yield curve is steep and short when it is flat. Furthermore, when I am long the yield curve tends to flatten and steepen when I am short. Therefore, I am hurt on both sides since a 6.5 yr bond declines relative to a 10 yr when I am long (the yield curve flattens, thus shorter term rates rise relative to longer rates and prices drop relative to longer term bond prices) and rises when I am short (the yield curve steepens, thus shorter term rates drop relative to longer term rates and prices rise relative to longer term bond prices). Therefore, I have added 30 year bond futures trading. The 30yr bond acts like a 15 year bond when rates are below 6%. Instead of just trading 10 year bond futures and adding more of them to make up for the lower duration of 6.5 yr bonds versus the 10 yr bond, I now trade a ratio of 10 year bond futures (6.5 year bond) and 30 year bond futures (15 years) to get to a 10 yr bond equivalent and eliminate the yield curve changes. Does this make sense? Any errors in my thinking? Anybody know what the yield curve change's affect on different duration bond prices is called? Thanks for the help
How do you compare holding & rolling futures contracts and holding cash bonds in terms of long term returns?