The SGI MOnetary policy Driven strategy EUR (“MOD EUR”) index is a systematic strategy on short term EUR interest rates that seeks to exploit the non realisation of the 3M interest rate forwards by taking into account the momentum tendencies in the short term interest rate market. The strategy takes long or short positions on Euribor 3M futures contracts. Risk is dynamically managed through a daily mechanism that aims to maintain volatility close to 3%.
The European Central Bank (ECB) revises its rates periodically, and these repeated moves create trends in short-term interest rates. Whenever the ECB is starting to hike or cut its target rate, it is generally maintaining the same trend over several months. The MOD EUR strategy aims to make the most of this continuity.
The index combines 2 performance engines:
- The Roll-down premium: rolling long futures positions when rates are constant or decreasing generally generates a positive gain.
- The Trend Following strategy: In order to follow the trends created on the short term interest rates markets, the strategy takes long or short positions on 3M Euribor futures contracts, depending on the direction of the ECB revisions of its target rate and on the impact of ECB speech on forward rates.