Successful Factors to Select Outperforming Bonds

Abstract

We describe a way of selecting corporate bonds that will produce better performance than the market as a whole. This research has many similarities with the well-investigated field of factor based stock selection strategies. The variables that prove to have forecasting power are Bond momentum, Valuation measured by the spread and Equity revisions. A multi-factor strategy leads to an even better performance with stable results over time due to a low correlation between the variables. The strategy both selects winners and avoids losers.

Keywords: Factor Investing, Factors, Value, Momentum, Size, Credts, Corporate Bonds, Investment Decisions, Information and Market Efficiency, Portfolio Choice