巴黎银行-全球-投资策略-深度研究：巴黎银行R周期介绍-20190405-15页_3mb

BNP Paribas Cyclical-R Model Summary

Core Content

BNP Paribas has introduced the Cyclical-R model, a new fair value model for 10-year government bond yields. It combines cyclical variables with the $R^*$ framework, which is based on macroeconomic fundamentals. The model is used to determine whether yields are currently too high or too low relative to economic conditions and is currently applied to seven developed markets.

Key Features of the Model

• Combines two academic approaches: the $R^*$ framework and the Taylor Rule.
• Uses econometric techniques to estimate fair value.
• Incorporates long-term variables such as potential GDP growth, trend inflation, and an unobservable structural factor.
• Uses cyclical variables including the output gap, inflation gap, excess liquidity, and equity market performance.
• Employs a Chow-Lin interpolation technique to estimate GDP and provides a real-time economic strength index.
• Applies constrained maximum likelihood regressions to avoid overfitting and ensure economic intuition.
• Uses a rolling three-year regression to account for time-varying relationships between variables and yields.

Model Output and Signals

• Germany and UK yields are currently 15bp below fair value, indicating a potential rise in the coming months.
• Australia yield is 55bp below fair value, but the model shows low confidence in the convergence.
• US yield is in line with its cyclical fundamentals, with fair value at 2.48%.
• France, Japan, and Canada yields are broadly in line with their fair values.

Performance and Backtesting

• The model is tested using a trading strategy that buys or sells bonds when yields deviate by more than one standard deviation from fair value.

• Backtesting results show that deviations from fair value tend to be temporary, with a typical convergence period of 3–12 months.

• The Sharpe Ratios for the portfolio and long/short strategies are as follows:

  • Portfolio: 0.54
  • Long & short bonds: 1.13
  • Long bond only: 0.79
  • Short bond only: -0.23

• The long-only strategy (buying bonds when yields are above fair value) has a higher Sharpe ratio, indicating better performance.

• Carry and roll effects influence the performance of the strategy, with negative impact on rising yields and positive impact on declining yields.

• The overall Sharpe ratio for the trading strategy is 0.54, suggesting it can be a useful tool for managing bond exposures.

Key Insights

• Cyclical-R is not intended to be the sole basis for investment decisions, but rather a systematic signal based on current macroeconomic conditions.
• The model is not always aligned with BNP Paribas’s views, as other factors may also influence bond yields.
• Germany and UK yields are seen as overshoots, with the model suggesting they will likely converge back to fair value within 3–12 months.
• Australia shows the largest overshoot, but the model is less confident in its prediction.
• The model's accuracy is based on historical data and interpolation techniques, and is subject to market and macroeconomic changes.

Conclusion

BNP Paribas Cyclical-R is a new fair value model that integrates cyclical and long-term macroeconomic variables to assess 10-year government bond yields. It provides systematic signals for bond market behavior, with deviations from fair value typically resolving within 3–12 months. The model is used as an input for analysis but is not always in line with BNP Paribas’s views, as it may not consider all market dynamics. The backtesting results suggest that the model can be a valuable tool for managing bond exposures, particularly when yields overshoot fair value.