Beyond Carry and Momentum in Government Bonds

Abstract

This article revisits recent literature on factor investing in government bonds, in particular regarding the definition of value and defensive investing. Using techniques derived from machine learning, the authors identify the key drivers of government bond futures and the groups of factors that are most genuinely relevant. Beyond carry and momentum, they propose an approach to defensive investing that considers the safe-haven nature of government bonds. These two main styles may be complemented by value and a reversal factor in order to achieve returns independently from broad movements in interest rates.

Keywords: Factor and style investing, xed income, macroeconomy, macro-nance, seasonality, mean-reversion, machine learning, variables selection, panel regression, clustering, covariance selection, selection bias under multiple testing

JEL Classification: G12, C31, C38, E43, E44