Global Bonds Scorecard: Macro and Market Signals
Good morning folks,
Let’s walk through some signals across the board. We’ll mainly cover global bonds and provide a quick update on macro scores for equities.
Global Bonds
Over the past few weeks, I’ve been working on improving my macro scorecard for sovereign government bonds. I’ve been reading some research from Macro Synergy and testing signals based on “hard macro” data. Here’s what I’ve concluded:
You need a composite score that summarizes both macro and market features.
On the macro side, GDP, CPI, and budget balances are sufficient.
On the market side, a few key factors are enough.
For GDP and CPI, I apply an “above/below median” approach. By checking the median real GDP growth y/y and median CPI y/y over the past five years, I get benchmark values to compare against forecasts for 2025 and 2026. The weighting for each year is based on how many days are left in 2025 relative to 365. Then I take the difference between these forecasts and the historical median.
For budget balances, I calculate the change in forecasts over the past six months for 2025 and 2026, using the same weighting approach.
Next comes the usual process: z-scoring, ranking, and equal weighting across all derived scores. Sign adjustments are important—here I follow AQR’s method as outlined in this paper.
Then we assess market factors. In fixed income, we keep it simple:
Momentum, calculated using yield movements (inverted for ranking)
Real yields
Carry, measured through 2s10s steepening adjusted for curve volatility
I assign more weight to market scores than macro scores but cross-validate this and test for optimal weights.
What Does the Scorecard Say?
We continue to favor peripheral European countries. The best bond globally remains the BTP, followed by French OATs and Spanish Bonos. On the other end, JGBs are still the worst-performing bonds (have you seen those real yields? Awful), followed by Bunds and South Korean bonds. US Treasuries are currently neutral.
From here, you can start to build relative value trades based on positioning and your risk appetite. For example, I currently hold a small BTP/Bund position. I’ve been taking profits as the spread is compressing sharply. It looks tight versus IG spreads—although not bad on a realized vol basis, which is why I’m still in with a small size.
I’m also eyeing a OAT/Bund tightening trade. OATs are well supported across the board but carry political risk. That matters. I’d be interested if we approach 70bps again.
Meanwhile, I’m running outright shorts in JGBs.
Equities
No major changes to the scorecard yet, but I’ve been doing some work. Here’s a quick update:
I’m running intra-EMU equity spreads—DAX/SX5E, IBEX/CAC—and recently closed MIB/CAC after a strong run.
That’s everything for today.
Take care,
spaghettilisbon
Thanks man!