Quant funds profit as global government bond yields surge

Systematic quantitative hedge funds recorded strong year-to-date returns after positioning for a global government bond sell-off. The 10-year US Treasury yield rose from about 4% at the end of February to above 5.2%, and reached 5.342% on October 1. Sovereign bonds in France, the UK and Italy also faced heavy selling pressure.

Performance figures show several prominent managers posted large gains. Graham Capital’s Tactical Trend fund was up more than 31% for the year, including a roughly 3.3% gain in September. Winton’s Diversified Macro fund had gained about 17.5% through late September, while Aspect Capital’s flagship fund was up about 21% year-to-date and gained nearly 5% in September. Those returns reflect positions across bonds, energy and other markets.

Trend-following strategies use rules-based algorithms to identify persistent price moves and adjust exposure accordingly. As bond prices fell and yields rose, many systematic funds increased short or duration-reducing positions in fixed income. Because these programs trade multiple asset classes, managers were also able to add exposure to energy and commodity trends.

Energy prices contributed to the pattern in markets. Brent crude rose by roughly 40% since the Iran conflict began in February and traded above $100 a barrel. Higher fuel and commodity costs added to expectations that consumer prices could remain elevated.

Central-bank policy and debt supply influenced the sell-off. The Federal Reserve raised its policy rate last month for the first time since 2023; the European Central Bank has raised rates twice. Investors are also positioning for further increases from the Bank of England. Large volumes of government and corporate borrowing this year increased the amount of long-term debt investors must absorb, pushing required yields higher.

Technical factors amplified price moves. Some market participants unwound losing positions as yields climbed, creating additional momentum that trend-following programs could exploit. The combination of geopolitical tensions, rising energy costs, strong US economic data, central-bank tightening and heavier debt issuance produced a sustained period of rising yields that systematic managers were positioned to trade.