AlphaSimplex’s Kathryn Kaminski warns bond traders can’t rely on traditional playbooks anymore

Bond traders who spent their careers watching GDP prints and jobs reports for direction are finding those old compasses increasingly unreliable. Kathryn Kaminski, Chief Research Strategist and Portfolio Manager at AlphaSimplex Group, says the fixed-income market has fundamentally shifted: geopolitical risk and inflation dynamics are now calling the shots, and traditional economic growth signals have been demoted to supporting characters.

The warning lands at a particularly sensitive moment, coming shortly after the latest Federal Open Market Committee meeting, where policy decisions continue to weigh heavily on the long-term outlook for bonds.

The old model is breaking down

Kaminski argues that the bond market has become a tug-of-war between policy decisions and reactions to geopolitical instability, creating a whipsaw environment that punishes traders anchored to older models.

“It’s still really a back and forth between policy and reaction to geopolitical risk that’s key for bonds.”

AlphaSimplex, a firm specializing in systematic, quantitative investment strategies, actively trades fixed-income futures and runs managed futures strategies that rely on trend-following signals rather than fundamental forecasts. Trend-following systems don’t try to predict why a market moves, only that it is moving, and in which direction.

When the quants flip their bets

In early 2024, AlphaSimplex exited a multi-year short bond bet as its trend signals shifted to the long side. Multi-year directional bets are rare in systematic strategies, and unwinding one suggests the underlying market dynamics changed enough to override deeply embedded trends.

What this means for investors navigating bond markets

Managed futures strategies like those run by AlphaSimplex aim to capture trends across asset classes without committing to a single macro thesis, giving them flexibility that traditional bond funds lack. The tradeoff is that trend-following can underperform in choppy, range-bound markets where signals whipsaw before trends establish themselves.

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