26 Pages Posted: 14 Sep 2010
Date Written: February 13, 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.
Keywords: Fixed income, Monetary policy, Business cycle, Asset allocation
JEL Classification: G11, E44, E43
Suggested Citation: Suggested Citation
Boyd, Naomi E. and Mercer, Jeffrey M., Gains from Active Bond Portfolio Management Strategies (February 13, 2010). Journal of Fixed Income, Vol. 19, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=1676371