Monday, March 26, 2007

Bond Rally

This morning saw the bond market rally in response to the weak housing data report. As such, we think it is appropriate to reverse our inverse bond position after realizing moderate profits. According to Reuters: "Sales of new U.S. homes unexpectedly fell 3.9 percent in February to the lowest rate in nearly seven years while the number of new homes on the market grew, according to a government report on Monday that showed more signs of weakness in the housing sector. The monthly decline was the second straight and the volume of sales fell to their lowest level since June 2000, when they hit 793,000. The struggling housing market also weighed on investors' confidence in the U.S. economy, according to a survey released on Monday. The UBS/Gallup Index of Investor Optimism fell to 78 in March from 90 in February, the lowest reading since 74 in September."

At the margin, we think this is also a positive for the US Dollar Index.

Strategy Update: The Dynamic Duration Select and Dynamic FX Plus strategies have each had excellent performance versus the Lehman Aggregate Index over the last 6 and 12 months (see charts: Duration Select has been slightly stronger over 6-9 months while Dynamic FX has been stronger over 12 months). There are some crossover aspects to these strategies (primarily bond exposure). In addition, we have determined that the goal of each strategy can be pursued in a combined context. As such we have merged the Duration Select Strategy into the Dynamic FX Plus Strategy and are calling the new strategy Dynamic Bond/FX.


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