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Macro Across Monetary Regimes

Shifts in central bank policies often mark new market phases, though predicting these inflection points is notoriously challenging. As economic priorities evolve, central banks must carefully balance growth, labor markets, and inflation—easing rates enough to support growth without reigniting inflation. Amid these transitions, macro hedge funds play a unique role in diversifying risk within investment portfolios, particularly during periods of economic uncertainty. This analysis examines how macro strategies have historically performed across various monetary policy environments and explores the implications for traditional stock and bond portfolios.


At its core, global macro is a comprehensive strategy designed to capitalize on the effects of economic and geopolitical developments on global markets. By analyzing the impact of macroeconomic variables on interest rates, currencies, commodities, credit, and equities, global macro managers seek to position their portfolios to profit from both anticipated and unexpected shifts in the global landscape.

Monetary policy, deeply intertwined with economic fundamentals, often creates opportunities for macro strategies by driving directional price moves, market volatility, and dislocations. Historically, changes in policy rates have shown a positive relationship with the alpha generated by macro hedge funds, as illustrated below. This alpha arises not only from the policy shifts themselves but also from the economic catalysts that compel central banks to act.

Additionally, the dispersion of G10 front-end rates, a proxy for global monetary policy divergence, has similarly shown a positive relationship with macro alpha generation, as shown below. When central banks adopt differing stances, it creates disparities in interest rates and economic outlooks across regions. These divergences can lead to substantial shifts in currency valuations, capital flows, and asset prices, creating trading opportunities for macro managers.

This analysis explores how macro has historically performed across different monetary policy regimes. Importantly, as a multi-variate strategy with a wide range of trading drivers, the success of macro trading strategies is only captured after careful consideration of each regime’s unique economic dynamics. We see that macro strategies can adapt to evolving economic variables, often providing diversification to a broader portfolio when it is needed most.


The chart below compares average monthly returns of macro hedge funds and a 60/40 portfolio across different monetary policy regimes. A high-level view of these regimes shows that macro strategies have historically delivered positive returns in various environments—whether easing, tightening, or transitions in between. Notably, macro has outperformed traditional assets during monetary easing cycles, when central banks cut rates in response to crises or fragile economic conditions. This highlights macro managers’ ability to capitalize on dislocations when diversification is most critical.

While traditional assets also generate positive returns across cycles, the details of each regime reveal greater downside volatility for these assets, underscoring macro’s complementary role in portfolios. Importantly, performance is influenced not only by monetary policy shifts but also by the broader macroeconomic landscape, with key insights often found in the nuances of each regime.







Macro strategies excel in dynamic economic environments, including both easing and tightening cycles, as well as periods of transition marked by market volatility and dislocations. These strategies are particularly effective during heightened central bank intervention and economic uncertainty, with trading drivers that include monetary policy, inflation dynamics, and global economic divergence, among others. Conversely, in periods of low volatility and stable markets — often associated with policy normalization — macro opportunities are more muted as trends and inefficiencies become less pronounced.

Macro trading is inherently adaptive, driven by the analysis of diverse macroeconomic variables and their impact on global markets. Positions are dynamic, shifting with evolving themes over days or weeks. While monetary policy is a key driver, it operates within a broader, multivariate macroeconomic context. By offering low correlation to traditional asset classes, macro strategies enhance the resilience and diversification of a 60/40 portfolio, providing a critical edge in navigating complex financial landscapes.

Macro Trading Drivers

IMPORTANT DISCLOSURE

1 G10 Monetary Policy is defined by the cross-sectional standard deviation (dispersion) of G10 1 year swap rates from January 2000 to September 2024. “Divergent” policy reflects periods when the dispersion is above the historical mean. Synchronous policy periods reflects periods when dispersion is below the historical mean. See also: Graham Capital Management, “Carry in Different Monetary Policy Regimes.” Graham Capital Management Quant Log, https://www.grahamcapital.com/quant-post/carry-in-different-monetary-policy-regimes/. Accessed 12/30/2024.

Rate regime category labels used in this analysis are based on historical classifications from Forbes Advisor. “Fed Funds Rate History: Its Highs, Lows and Everything In-Between.” Forbes, https://www.forbes.com/advisor/investing/fed-funds-rate-history/. Accessed 12/30/2024.

“Federal Funds Target Rate (Upper Limit) [DFEDTARU].” FRED, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DFEDTARU. Accessed 12/30/2024.

“Federal Funds Target Rate (Lower Limit) [DFEDTAR].” FRED, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DFEDTAR. Accessed 12/30/2024.

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Source of data: Graham Capital Management (“Graham”), unless otherwise stated

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INDEX DISCLOSURE

The below are widely used indices that have been selected for comparison purposes only.  Indices are unmanaged, and one cannot invest directly in an index. Except for HFR indices, which do reflect fees and expenses, the indices do not reflect any fees, expenses or sales charges. Unlike most asset class indices, hedge fund indices included in this presentation have limitations, which should be considered in connection with their use in this presentation.  These limitations include survivorship bias (the returns of the indices may not be representative of all the hedge funds in the universe because of the tendency of lower performing funds to leave the index); heterogeneity (not all hedge funds are alike or comparable to one another, and the index may not accurately reflect the performance of a described style); and limited data (many hedge funds do not report to indices, and the index may omit funds which could significantly affect the performance shown; these indices are based on information self-reported by hedge fund managers which may decide at any time whether or not they want to continue to provide information to the index).  These indices may not be complete or accurate representations of the hedge fund universe and may be affected by the biases described above.

BLOOMBERG GLOBAL AGGREGATE INDEX: The Bloomberg Global Aggregate Index is a broad-based market capitalization weighted measure of the global investment grade fixed-rate debt markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. There are four regional aggregate benchmarks that largely comprise the Global Aggregate Index: The US Aggregate, the Pan-European Aggregate, the Asian-Pacific Aggregate and the Canadian Aggregate Indices. The Global Aggregate Index also includes Eurodollar, Euro-Yen, and 144A Index-eligible securities, and debt from five local currency markets not tracked by the regional aggregate benchmarks (CLP, MXN, ZAR, ILS and TRY).

BLOOMBERG US AGGREGATE BOND INDEX: The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, fixed rate agency MBS, ABS and CMBS (agency and non-agency).

HFRI MACRO INDEX: The HFRI Macro Index is a sub-index of the HFRI Fund Weighted Composite Index and is composite index of over 900 Investment Managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.

MSCI WORLD INDEX: A market cap weighted stock market index of 1,652 global stocks and is used as a common benchmark for ‘world’ or ‘global’ stock funds. The index includes a collection of stocks of all the developed markets in the world, as defined by MSCI. The index includes securities from 23 countries but excludes stocks from emerging and frontier economies.

S&P 500 TOTAL RETURN INDEX: An unmanaged, market value-weighted index measuring the performance of 500 U.S. stocks chosen for market size, liquidity, and industry group representation.  Includes the reinvestment of dividends. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.

60/40 PORTFOLIO or GLOBAL 60/40 PORTFOLIO:  Reflects a hypothetical portfolio with a 60% allocation to equities and a 40% allocation to bonds as represented by the MSCI World Index and the Bloomberg Global Aggregate Index, rebalanced monthly. Performance of the underlying stock and bond indices is calculated on a gross basis. This is a hypothetical composite portfolio that is not investable. Please refer to important disclosures at the end of this document regarding hypothetical performance.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Stocks and bonds are represented by the MSCI World Index and the Bloomberg Global Aggregate Index, respectively, unless otherwise noted.

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