Bond & SPX Liquidity Model Updates
Where do we stand?
Last year, I presented two long-running bond allocation models, which have informed us when to hold bonds and when to fold them. Both models have a great track record, reaching back to the late 1980s and early 1990s, respectively. In 2022, they both successfully sidestepped the vicious bond sell-off and then re-engaged in bond markets only temporarily in 2023 before triggering a buy signal in early November 2023.
See the write-up from last year below.
A Simple Bond Allocation Model v1
I have been looking for various ways to build strategic asset allocation models over the years, including bond models. The goal is to have a relatively simplistic rule set out and try to backtest it as far as possible. This post is part of a series where I present some models and strategies that I have found to be useful.
A Simple Bond Allocation Model v2
As a follow-up piece to my previous bond allocation v1, I wanted to show you another example of a model-based strategy which has historically worked well. Again, I am taking a tested model which worked well into the mid-90s and then updating the weekly performances to see how it would have fared over the most recent times.
Similarly, I presented a liquidity model in the Macroscope series, which took my thesis on relevant liquidity flows and integrated this concept into an allocation model for the SPX. Since 1962, this very simple model has beaten the index hands down while also doubling the Sharpe ratio by avoiding larger drawdowns.
I have updated the models with the most recent weekly data ending yesterday to see whether something has changed.
Let’s explore.