2s10s Steepener Inflation Signal

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Introduction

The purpose of thise notebook is to show how create an investment strategy expressed as a 2s10s Steepener and is based on an inflation signal. ## Environment This section will import relevant internal and external libraries, as well as setting up the platform environment.

import sigtech.framework as sig

from uuid import uuid4
import datetime as dtm
import pandas as pd
import seaborn as sns

sns.set(rc={'figure.figsize': (18, 6)})
env = sig.init(env_date=dtm.date(2024, 2, 22))

Universe

START_DATE = dtm.date(2007, 1, 4)

pce_df = sig.obj.get('ECO TRIMMED_MEAN_PCE STLOUISFED US MACROECONOMICFIX').data_df()
pce_df = pce_df[START_DATE:]
pce_df.head()

pce_df['value'].plot(title = 'PCE History');

# Create 2y rolling swap to go long
r_swap_short = sig.RollingSwapStrategy(
    currency='USD',
    swap_currency='USD',
    forward_start_months=3,
    start_date=dtm.date(2007, 1, 4),
    tenor='2Y',
    ticker=f'USD 1Y ROLLING SWAP {str(uuid4())[:8]}'
)

# create 10y rolling swap to go short
r_swap_long = sig.RollingSwapStrategy(
    currency='USD',
    swap_currency='USD',
    forward_start_months=3,
    start_date=dtm.date(2007, 1, 4),
    tenor='10Y',
    ticker=f'USD 30Y ROLLING SWAP {str(uuid4())[:8]}'
)

# put the 30y and 5y in to a basket with equal notional positions
# Basket Strategy Building Block
swap_basket = sig.BasketStrategy(
    currency='USD',
    start_date=dtm.date(2007, 1, 4),
    constituent_names=[r_swap_short.name,r_swap_long.name],
    weights=[0.5, -0.5],
    rebalance_frequency='EOM',
    ticker=f'USD SWAP CARRY BASKET {str(uuid4())[:8]}'
)

Strategy

signal = pce_df['value'].diff(1).apply(lambda x: 1 if x >= 0 else 0)
signal.head()

swap_basket_mapped = pd.DataFrame({swap_basket.name:signal})
swap_signal_obj = sig.signal_library.from_ts(swap_basket_mapped)

Portfolio Construction

signal_strategy = sig.SignalStrategy(
    start_date=START_DATE,
    currency='USD',
    signal_name=swap_signal_obj.name,
    convert_long_short_weight=False,
    use_signal_for_rebalance_dates=True,
    t0_execution=True,
    allocation_function=sig.signal_library.allocation.identity,
    include_trading_costs=False,
    ticker=f'INFLATION STRATEGY {str(uuid4())[:4]}'
)

Performance Analytics

sig.PerformanceReport(signal_strategy.history()).report()