-CRVM (Computational Relative Value Matrix) is an advanced relative value tool for cash bond markets. It uses optimization techniques to fit curves to European Government Bonds, allowing sub-bps accurate relative value comparison over time.
AIMS of ITC CRVM model: Addressing the needs of Fixed Income Portfolio Managers:
- Quick visual overview of the different European Bond Markets and their performance, both on an individual basis and also relative to each other. The information complemented with expert market commentary to better understand the important themes driving market performance.
- Since the model provides smooth yield curves (IRS style), these are used to determine InterCountry Curve Relative Value unaffected by distortions created by such things as benchmark rolls.
- Visual presentation of individual Bond Relative Value with respect to their own yield curve.
For Leveraged/Hedge Fund Portfolio Managers:
- To enhance the model’s usefulness, important Relative Value opportunities both inter-country and specific bond RV are analysed, presented and complemented with expert market commentary to provide Portfolio Managers trading opportunities generated by the model.
- These Bond Relative Value opportunities providing tactical recommendations based on regression analysis of the shapes of the seven major curves in Europe, and designed to be overall country and duration neutral.
- Main tactical recommendations based on curve comparisons between different countries than from individual bond RV currently
- All trade signals generated by the model are analysed and rigorously tracked in a Model Portfolio to gauge the effectiveness and performance of the model.
- For Leveraged/Hedge Fund Portfolio Managers an overview of the model can be found at the following link: CRVM Model
For Pension Funds/Real Money Portfolio Managers:
- Visual overall market direction, peripheral spreads, curvature and generalised belly under- or out- performance. These graphs are combined with expert market commentary describing these important drivers
- Heat Map of Relative Value opportunities between the different countries and different maturity segments of the curve.
- Individual Bond Relative Value within the different segments of the curves.
- Total Return analysis on individual Bonds for portfolio managers looking to maximise Carry and Roll-Down returns.
- For Real Money Portfolio Managers an overview of the model can be found at the following link: CRVM Real Money
How the model should be used:
- Upon receiving the model output with market commentary. The portfolio manager quickly gets an update on market movements and important drivers.
- Important model charts can be printed out and used to discuss asset allocation, securities selection at investment meetings
- Once a week, the portfolio manager can compare the bonds in his portfolio against the individual bond RV generated by the model. At that time he may decide to sell some expensive bonds to move into other securities that are cheaper on the curve.
- Before the Portfolio Manager executes a trade, he can quickly have a final check on the individual bond RV to determine if his choice of bonds is optimum for the trade.
- As stated earlier, the Model output should also be used as an independent check on any sell side trade recommendation.
The client offering is high-touch, meaning Portfolio Managers should take full advantage of the market expertise at ITC for any special requests or analysis.
For any interest in receiving the output of the model on a free trial basis , clients can contact us at +44 208 879 1234
Philip Cadiz (professional Govt Bond trader & Commentator)
Thomas Browne (Quant & Fixed Income Specialist)
Robin Belec (Experienced Pension Fund & RM Portfolio Manager)