Bond MOVE Index and TLT Trading Strategy: Backtest Analysis

The MOVE index is to the bond market what the VIX index is to the stock market. It measures the volatility of rates through the options market. But what we really want to know is: Is it useful to develop a profitable strategy to trade bonds?

In this post, we are going to see what the MOVE index is, how bonds perform when volatility is high and backtest a trading strategy using the MOVE index and long-term bonds.

We backtest the following trading rules:

* We hold TLT when the MOVE index level is under its historical mean

* We sell TLT when the MOVE index is over its historical mean

We started the backtest in 2002. The data is adjusted for dividends and splits. Below is the equity curve.

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