All the global fixed income moves are linked to FOMC meetings

In the paper "Monetary Policy and the Secular Decline in Long-term Interest Rates: A Global Perspective", the authors document that the changes in yields during the three-day windows around FOMC meetings account for approximately 70%% of the secular decline in interest rates across G10 currencies since the 1990s. The effect is even stronger for the US alone. Wow! Follow the behavior around Fed announcements and skip the rest of the time. There is also a cumulative decline in the dollar during those periods, associated with a decline in US convenience yield. 

This is very interesting because it says that following the Fed is the only thing that matters to the bond market., Now, we knew that, but the full extent of this focus is amazing. Do not look at inflation or unemployment. Do not think about economic growth. All you need to know is wrapped up in the Fed’s actions. The time between Fed meetings is a period of noise for the bond markets. 

Is this healthy? All we can say is that following the Fed and everything else is boring. Markets react to news and the news on monetary policy dominates global bond markets.

Key principles for building a scalable trading model

 

The paper “Forecast-to-Fill: Benchmark-Neutral Alpha and Billion -Dollar Capacity in Gold Futures (2015-2025)” shows how a NASA physicist and MIT engineers would think about building a trend model. It is very similar to what we see with traditional trend-followers. The results are very good, but the process matters more. We highlight their key concepts.

We conclude that forecast-to-fill engineering—linking transparent signals to executable trades with explicit risk, cost, and impact control—can turn modest predictability into allocator-grade, billion-dollar-scalable alpha.

We build a process that consistently transforms small, noisy signals into statistically stable profits through structure: 

1. Smoothing extracts persistent direction from noisy returns without overreacting to random fluctuations. 

2. Confidence mapping converts that slope into a bounded, interpretable probability that scales exposure naturally. 

3. Volatility targeting keeps realized risk constant over time, preventing uncontrolled leverage in quiet markets. 

4. Friction-adjusted sizing ensures that every position has positive expected log-growth after trading costs. 

5. Disciplined exits enforce an asymmetric payoff: small losses, large and infrequent gains.

These principles can be applied to any quant model.

Richard Posner death and the economic analysis of the law

Richard Posner was a giant in the study of economics and law. He died yesterday. He was a towering professor of law and a respected federal appellate judge who focused on the intersection of economic theory and legal decision-making. His book, The Economic Analysis of Law, is in its ninth edition. 

It may seem odd to mention Posner's death, but legal decisions strongly affect finance. Specifically, property rights are critical in driving incentives and behavior. There may be a bias toward allowing plaintiffs to feel justice is served, yet legal decisions can have strong second-order effects that are often overlooked when deciding cases. Precedent is critical in our legal system, but legal decisions can have far-reaching effects on economic behavior. 

Professor Posner used clear, economically grounded logic to show how laws and court decisions can shape the economy and behavior. We will miss his insightful mind. 

Inflation is a monetary phenomenon

The idea that inflation is a monetary phenomenon fell out of favor in the 1980's. It made a comeback in the the pre-GFC period, but then was dismissed in the post_GFC period when inflation was tame during a period of high money growth. Money again became important after the monetary policy excesses of the pandemic. Now, supply shocks have impacted inflation, but over the long run, there is a link between money and inflation. It may not always be tradable, but we can say that strong money growth relative to GDP growth is linked to inflation. To solve long-run inflation, cut money growth.