Banks turn to dynamic algorithm-based structures to exploit interest rate cycles

Demand for fixed-income dynamic interest rate strategies that combine short-term algorithms and long-term positions on interest rate futures is slowly returning

The UBS Mistral strategy seeks to generate returns in periods of rising, stable and falling interest rates

Dynamic interest rate strategies may be subject to uncertainties in the market just like traditional rate structures, but they offer investors a more liquid method of diversification compared to hedge funds, according to market participants.

“One of the best approaches to counter the effects of low yields, one-sided risks and high volatility is the use of structures linked to the performance of a dynamic trading strategy index,” says Ralph Sebastian, head of interest rate derivatives and hybrids