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Research

Optimizing Yield Curve Positioning for Multi-Asset Portfolios

  • Many investors buy U.S. Treasuries to hedge equity risk. But do long Treasuries deliver the optimal risk/return trade-off?
  • Our research investigates this question by analyzing the optimal allocation of duration along the yield curve.
  • We find that a dynamic swap overlay strategy – positioned along the yield curve to account for carry and the stage of the business cycle – has the potential to deliver sizable Sharpe ratio and drawdown improvements.
  • On average, the “belly” of the curve – around five years – maximizes the diversification benefit relative to a benchmark portfolio.

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