Quant Funds Are Adding to the Selloff in Global Bond Markets

(Bloomberg) -- The three-week selloff in global bonds looks to be attracting the attention of quant funds that follow market trends -- and they have been adding fuel to fire.

Funds that follow price momentum are actively building short positions in Treasuries as yields rise, according to at least one metric. The rolling 30-day correlation between the Treasury 10-year yield and Hedge Fund Research Inc.’s Macro/CTA Index reached its highest since March this week.

A JPMorgan Chase & Co. model that follows a trend-following strategy also backs the case that quant funds -- also known as commodity trading advisors -- have been exacerbating the slide in global debt markets.

The model turned short 10-year German bunds on Feb. 12 and Treasuries on Feb. 16, and is now the most bearish on both in at least two years, JPMorgan strategists led by Nikolaos Panigirtzoglou in London wrote in a research note published Tuesday.

“This suggests that CTAs have served to amplify the bond market sell-off in recent weeks,” they said.

It’s easy to see why quant funds are being drawn to sell. Treasuries have racked up three straight weeks of losses, with benchmark 10-year yields climbing almost 30 basis points over the period to be at 1.35% on Wednesday. JPMorgan strategists note their model is still some way from the extreme levels that would indicate profit taking will begin.

©2021 Bloomberg L.P.