The chart below shows this generalisation \u2013 curves are usually positive but will experience prolonged periods where they are negative, usually at the perceived top of a rate cycle and\/or in expectation of an economic downtown. Most of the negative curves in the chart occurred post Lehman in late 2008.<\/p>\n
<\/p>\n \u00a0Monthly implied forward curves from LIFFE Euribor futures June 2002 to July 2012<\/b><\/p>\n <\/b>(Dotted line \u2013 latest curve in 2012)<\/b><\/p>\n <\/p>\n The following chart puts this in perspective.<\/p>\n \u00a0Euribor Stir futures curve steepness 2002 \u2013 2012<\/strong><\/p>\n Rather than look at the effects of instigating a rolling long or short position, like the commodity replication trades, which will be largely driven by market returns as well as\u00a0 roll yields, I thought it might be interesting to look at the returns on\u00a0 buying a 3-month spread and letting it roll down the curve. The general idea being to buy the spread where the curve is flat, in which case the purchase price should be close to zero and sell it when it has aged and rolled down the curve to a steeper point, usually closer to expiry, where it is sold, hopefully at a higher price. A spread is sold each month and so the process is on-going over time.<\/p>\n Based on my data sample (Dec 1999- Dec 2011), the optimised strategy was the following:<\/p>\n The table shows the result of the backtest.<\/p>\n![\"Untitled1\"](\"http:\/\/www.stirfutures.co.uk\/wp-content\/uploads\/2014\/02\/Untitled11.jpg\")
<\/a><\/p>\n<\/a><\/p>\n(15th quarterly expiry – 1st quarterly expiry)<\/strong><\/h6>\n
(Higher value = steeper curve,\u00a0Negative value = negative sloping curve)<\/h6>\n
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