Long Term Forward Rates Risk Premia

Long term rates broadly follow economic fundamentals such as GDP growth, inflation and unemployment which exhibit long term trends. Behavioral finance suggests that trending exists because markets do not respond instantaneously to new information. It usually takes time for information to permeate the markets, leading to only gradual price adjustments. The strategy takes advantage of these long term trends by building long and short positions in developed country bond markets, using primarily futures and/or forward contracts.

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