TrendYCMacro (TRENDYCMACRO)
Developed by Durian & Vojtko · Macro + Trend · Med Risk
TrendYCMacro was developed by Durian and Vojtko at Quantpedia, a quantitative research platform specializing in systematizing academic investment strategies. The strategy combines two independent macro signals — a yield curve indicator and a price trend filter — into a layered protection mechanism that requires both signals to agree before maintaining equity exposure. This dual-signal architecture provides robust recession detection by monitoring both the bond market's economic expectations and equity market price behavior.
The yield curve component captures one of the most reliable recession predictors in financial economics: the spread between long-term and short-term interest rates. When long-term rates fall below short-term rates — an "inverted" yield curve — it historically signals that bond markets expect economic weakness, tighter financial conditions, and eventual rate cuts. Yield curve inversions have preceded every US recession since the 1960s, typically by twelve to eighteen months, making them among the most studied and validated recession indicators in academic literature.
The trend component adds price-based confirmation to the yield curve signal. An inverted yield curve alone does not immediately produce equity weakness — markets can continue rising for months or even a year after inversion, as the economic slowdown takes time to materialize. By requiring equity prices to also fall below their moving average, the strategy avoids the premature defensive positioning that a yield-curve-only approach would produce, waiting until the predicted weakness begins manifesting in actual price declines before exiting.
The layered architecture means the strategy shifts to bonds only when both conditions are simultaneously met: the yield curve is inverted AND equity prices are below their trend. During periods when the yield curve is inverted but equities remain above trend — the historically common "pre-recession rally" phase — the strategy maintains equity exposure. During periods when equities are below trend but the yield curve is normal — typically representing a correction rather than a recession — the strategy also maintains equity exposure. This dual-confirmation design produces extremely rare defensive triggers that fire almost exclusively during genuine recession-linked bear markets.
How It Works
Yield Curve Signal
The strategy monitors the spread between long-term and short-term US Treasury yields — specifically, the difference between the 10-year and the 2-year (or 3-month) Treasury rates. When long-term yields exceed short-term yields (positive spread), the yield curve is "normal" and the bond market is pricing in continued economic expansion. When short-term yields exceed long-term yields (negative spread), the curve is "inverted" and bond markets are signaling expected economic weakness.
The yield curve's predictive power derives from its reflection of collective market expectations about future monetary policy. An inverted curve suggests that bond traders expect the Federal Reserve to eventually cut rates in response to economic weakness — a bearish macro forecast expressed through interest rate positioning. The reliability of this signal across multiple economic cycles and decades of data makes it one of the most robust macro indicators available to systematic investors.
Price Trend Confirmation
The trend filter checks whether US equity prices (SPY) are above or below their ten-month simple moving average. This price-based signal confirms whether the macro weakness predicted by the yield curve has begun manifesting in actual market price declines. The combination of a forward-looking macro indicator (yield curve) with a concurrent price indicator (moving average) creates a signal that is both anticipatory and confirmed — predicting weakness before it arrives while waiting for price evidence before acting.
The trend filter prevents the strategy from exiting equities prematurely during the often-extended period between yield curve inversion and the onset of equity decline. Historically, equity markets have risen by ten to twenty percent in the twelve to eighteen months following an inversion, as the economy continues growing on accumulated momentum. The price confirmation requirement allows the strategy to capture this late-cycle rally while still exiting before the bulk of the subsequent decline.
Layered Protection Logic
The two signals operate as an AND gate: defensive positioning activates only when both the yield curve is inverted AND equity prices are below their moving average. This dual requirement creates four possible states. Normal curve with positive trend: fully invested (the default state during mid-cycle expansions). Inverted curve with positive trend: still invested (capturing late-cycle gains). Normal curve with negative trend: still invested (typical of corrections that don't involve recession). Inverted curve with negative trend: fully defensive (recession-linked bear market confirmed).
When the defensive trigger fires, the portfolio shifts entirely from US equities (SPY) to intermediate bonds (IEF). When either condition clears — either the yield curve normalizes or equity prices recover above their moving average — the portfolio returns to equities. The dual-gate design means the strategy spends the vast majority of its time in equities, entering defensive mode only during the relatively rare convergence of macro weakness and price confirmation that characterizes genuine recession-driven bear markets.
Explore TrendYCMacro (TRENDYCMACRO)
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