No change in yields expected for euro bonds

The Kathrein bond funds attempt to add value by identifying upward and downward trends in interest rates and adjusting the average maturity accordingly (longer dated bonds, when yields decline and prices rise and vice versa). This is achieved across three models within the 2-year, 5-year and 10-year duration universe. During interest rate increases the average duration is gradually reduced in three steps, with falling rates, it is increased in three steps This is achieved across three models within the 2 year, 5 year and 10 year duration universe.

The theory behind the duration model is the assumption that interest rate developments follow trends. The objective of the duration model is to identify trends and reversals in time to adjust the duration accordingly.

Since December 1, the model has been implemented with slight adjustments; it includes new stop signals which are supposed to generate better results, especially during periods of low interest rates.

The Kathrein duration model was long in three futures at the beginning of the quarter. By mid-January the model switched to neutral and then to sell toward the end of the month. In March, the positive trend continued in the German fixed income markets and intensified toward the end of the month due to the turbulences following the crisis in Cypress. The duration model ended the quarter with a long position in Bunds and German federal notes (Bobls) and a neutral position in Treasuries.

The following chart illustrates the performance of the EFFAS EURO > 1 Year Government Bond Index against the Kathrein Euro duration model.