Trading (external) positions

Research evidence excerpt

Trading (external) positions

6 July 2026

Fixed Income Blog

The graphs below show the time series of the estimated intercept and slope. The

intercept reflects the broad decline in interest rates from the Volcker era in the

early 1980s to Covid in the early 2020s. Global 10Y yields have since recovered

to their early-2000s, pre-GFC levels.

Figure 1: After a secular decline over 4 decades, the Figure 2: The cost of attracting foreign capital has

global 10Y yield has recovered to pre-GFC levels declined from the early 80s to the late 90s

Source: Deutsche Bank Research, OECD, IMF, EWN, Haver Analytics Source: Deutsche Bank Research, OECD, IMF, EWN, Haver Analytics

The slope declined in absolute terms from -10 to around -1.5 from the early 1980s

to the late 1990s. The decline in the cost of attracting foreign capital reflects the

greater financial globalisation and economic integration that occurred over this

period. Since 2000, the cost of attracting foreign capital increased during the GFC

and subsequently declined during periods of aggressive QE.

Figure 3: The cost of attracting foreign capital Figure 4: NIIP explanatory power has averaged 50%,

increased during the GFC and decreased during QE with a 20% - 75% range

Finally, the R-squared of the cross-sectional regressions averaged 50%, with a

range of 20% to 75%, over the 1980–2025 period.

Description and performance of the trading strategy

We consider a simple trading strategy. Each year, we rank bond markets

according to the residuals of the cross-sectional regression. We go long the two

cheapest markets (the most positive residuals) and short the two most expensive

markets (the most negative residuals). We assume a one-year holding period. We

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