The Hottest Quant Trade of The Year

The largest factor in quantitative trading is being able to keep up with the times. Being too far behind can put you out of business, while being too early can test your mettle. So, as we are currently on the verge of a significant regime change, let’s see exactly how quantitative bond traders are adapting to the times. <h2>Farewell, Rate Hikes</h2> The major theme of 2022 and early-2023 was: “how aggressively will the fed raise rates?”. The market had been in a regime of near 0% interest rates for more than 10 years, so such a planned shift offered traders an opportunity to get in early and bet big. Naturally, this led to a few home runs: We addressed exactly how they did it here: <a href="https://medium.com/p/9b743a87cb4d" rel="noopener">Bond Trading Is More Profitable Than You Think… Like, Way More.</a> However, what goes up, must come down — or at least stay flat. With interest rates currently (as of September 2023) at ~5.50%, the market is starting to anticipate that we’re at a peak, and that a significant trading opportunity exists — much like the one in 2022. But before we dive into the strategy, let’s first get some data to back this up. <h2>The FedWatch Tool</h2> If we want to get a heads up on where the bond market is going next, there’s no better place than the <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html" rel="noopener ugc nofollow" target="_blank">CME FedWatch Tool</a>: <a href="https://quant-galore.medium.com/the-hottest-quant-trade-of-the-year-97c99c8c1f0c">Learn More</a>