Abstract
This paper explores time series momentum in interest rates across developed and emerging market countries and various interest rate maturities. With a one-year lookback window, almost all countries in our sample of G10 developed countries and 18 emerging market countries strategies have statistically significant positive time series momentum strategy returns. Shorter tenor (2-year) interest rate swaps have greater momentum returns compared to longer tenor (5-year and 10-year) interest rate swaps which arguably is a result of investor underreaction to monetary policy cycles. A significantly greater share of the positive momentum returns across all tenors comes from falling rate environments versus rising rate environments as a result of the secular decline in interest rates in recent decades. This suggests that if low interest rates continue to persist, future interest rate time series momentum strategy returns could be lower.
Published Version
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