Exploratory · backtest

Bonds under dual momentum

Dual momentum applied to bonds: rotating long Treasuries, investment-grade credit and emerging-market debt — and the honest question of where to hide when none of them holds up.

Bonds in dual momentum

Dual momentum isn't just for equities. On bonds, it rotates a small universe — long Treasuries, investment-grade credit, emerging-market debt — holding the strongest-momentum one each month and switching to a defensive parachute when none holds up. The idea: capture whichever bond pocket is working (falling rates → Treasuries; tightening spreads → credit or EM) without staying stuck in the one that's hurting.

The bond sleeve (long Treasuries / investment-grade credit / emerging-market debt) run through dual momentum, against aggregate US bonds (AGG) bought and held. Reconstructed total-return series, ≈1995–2025 — a documentary, backtest-only window; read the shape, not the levels.

Three different risk drivers

Long Treasuries react to duration and policy rates; investment-grade credit to the cycle and spreads; EM debt to global risk and the dollar. Rotating between them diversifies the drivers of bond risk — not just lengthening or shortening duration.

The real question is the parachute

When all bonds weaken together, where do you hide? The robust default is cash: it loses nothing, it waits. But a tempting intuition exists.

Gold as the refuge? Appealing, thinly supported

When bonds are distrusted — inflation, fiscal drift, runaway rates — what hurts bonds is often what makes gold shine. Gold is the anti-bond: no coupon, but it depends on neither an issuer nor a currency. Hence the idea of OOM = gold instead of cash: if you're fleeing bonds, gold would be the natural refuge.

Appealing — but fragile. Even over the reconstructed ≈30-year window used in the chart below (about 1995–2025), the evidence is thin: it is a secular pro-bond regime — rates broadly falling from their mid-1990s highs — and the genuine test of gold versus bonds, the 1970s and early-1980s stagflation and rate spikes from a peak, falls outside it (usable emerging-sovereign data only begins around 1995). The one real in-window bond shock is 2022, and it was no gold triumph: gold stayed roughly flat in dollars while long Treasuries fell about −30%. “Better than bonds,” yes; “dazzling refuge,” not really.

So “OOM = gold” is a hypothesis, not a validated edge. The chosen compromise — a 50% gold / 50% cash parachute — takes half of it: some of gold's conviction, some of cash's safety, until longer proxies settle it. Read it as an exploration, not a recommendation.

The same bond strategy, identical signal, three parachutes: out-of-market in cash, in gold, or in a 50/50 blend (≈1995–2025). Honestly, over this full window the cash parachute leads on both return and worst drawdown (ratio ≈0.64); gold actually lags (≈0.31); the 50/50 blend sits between (≈0.50). Gold's appeal rests on a few stress episodes and on a longer history these instruments cannot see — which is why “OOM = gold” stays a hypothesis, and the blend a hedge.

Replicable in Europe

Each block has its UCITS equivalent (long Treasuries, $ credit, $ EM debt, gold, T-Bill) — see the equivalence table. As always the backtest runs on raw prices: in reality, count the funds' TER and the friction of rotations.

Last checked: June 2026.