Gains from Active Bond Portfolio Management Strategies
Naomi E. Boyd
West Virginia University; U.S. CFTC
Jeffrey M. Mercer
Texas Tech University - Department of Finance
February 13, 2010
Journal of Fixed Income, Vol. 19, No. 4, 2010
The belief that excess returns can be achieved by correctly timing changes in yields and/or yield spreads motivates active bond portfolio management strategies. Given the rich literature linking yield spread patterns to both the business cycle and changes in short-term interest rates, we motivate and demonstrate the efficacy of simple spread-trading strategies tied to both. Using thirty-four years of fixed income returns, we demonstrate that straightforward rules would have led to superior risk-adjusted performance relative to standard fixed-income benchmarks. Furthermore, the strategies tied to short-maturity interest rates are based on the use of past information only.
Number of Pages in PDF File: 26
Keywords: Fixed income, Monetary policy, Business cycle, Asset allocation
JEL Classification: G11, E44, E43
Date posted: September 14, 2010
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