Trading DMFX with Turnleaf Analytics inflation forecasts
In this paper, we examine ways of trading DMFX using Turnleaf Analytics inflation forecasts. The intuition is that Inflation forecasts expectations are linked to monetary policy expectations given that central banks target inflation. We also examined the relationship between the curve of inflation forecasts and spot. We created a portfolio which used as an input the inflation forecast in the front end and the inflation forecast curve for DMFX. This portfolio had risk adjusted returns of 1.4 and returns are 5.7% in a historical sample since 2018. It outperforms trend and carry over the same period.