Fixed Income Carry Strategy

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Introduction

The purpose of thise notebook is to show how one could make use of several different building blocks on the SigTech platform to build a simple FX-hedged fixed income carry strategy.

Environment

This section will import relevant internal and external libraries, as well as setting up the platform environment.

import sigtech.framework as sig

import datetime as dtm
import seaborn as sns

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

Universe

def swap_carry_basket(
    ccy: str,
    start_date: dtm.date
) -> sig.BasketStrategy:
    # Create 5y rolling swap to short
    r_swap_short = sig.RollingSwapStrategy(
        currency=ccy,
        swap_currency=ccy,
        forward_start_months=3,
        start_date=start_date,
        tenor='5Y',
        ticker=f'{ccy} 5Y ROLLING SWAP'
    )
    # create 30y rolling swap to go long
    r_swap_long = sig.RollingSwapStrategy(
        currency=ccy,
        swap_currency=ccy,
        forward_start_months=6,
        start_date=start_date,
        tenor='30Y',
        ticker=f'{ccy} 30Y ROLLING SWAP'
    )
    # put the 30y and 5y in to a basket with equal notional positions
    basket = sig.BasketStrategy(
        currency=ccy,
        start_date=start_date,
        constituent_names=[r_swap_short.name, r_swap_long.name],
        weights=[-0.5, 0.5],
        rebalance_frequency='EOM',
        ticker=f'{ccy} BASKET'
    )
    # if the basket is not USD perform an FX hedging overlay
    if not ccy == 'USD':
        basket = sig.FXForwardHedgingStrategy(
            strategy_name=basket.name,
            currency='USD',
            start_date=basket.start_date,
            exposure_rebalance_threshold=0.02,
            hedge_rebalance_threshold=0.02,
            hedging_tenor='1M',
            ticker=f'USD {ccy} FX-HEDGING'
        )
    return basket

start_date = dtm.date(2010, 6, 14)
constituents = {
    ccy: swap_carry_basket(ccy, start_date)
    for ccy in ('USD', 'GBP', 'EUR')
}

Portfolio construction

carry_strat = sig.BasketStrategy(
    currency = 'USD',
    start_date = start_date,
    constituent_names = [x.name for x in constituents.values()],
    weights = [1.0 / len(constituents)] * len(constituents),
    rebalance_frequency = 'EOM',
)

Performance analytics

sig.PerformanceReport(carry_strat, cash=sig.CashIndex.from_currency('USD')).report()