Predicting Bond Returns: 70 Years of International Evidence

Financial Analysts Journal, 2021, 77(3): 133-155.

40 Pages Posted: 24 Jun 2020 Last revised: 18 Aug 2021

See all articles by Guido Baltussen

Guido Baltussen

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Martin Martens

Erasmus University Rotterdam

Olaf Penninga

Robeco Asset Management

Date Written: June 19, 2020

Abstract

We examine the predictability of government bond returns using a deep sample spanning 70 years of international data across the major bond markets. Using an economic, trading-based testing framework we find strong economic and statistical evidence of bond return predictability with a Sharpe ratio of 0.87 since 1950. This finding is robust over markets and time periods, including 30 years of out-of-sample data on international bond markets and a set of nine additional countries. Furthermore, the results are consistent over economic environments, including prolonged periods of rising or falling rates, and is exploitable after transaction costs. The predictability relates to predictability in inflation and economic growth. Overall, government bond premia display predictable dynamics and the timing of international bond market returns offers exploitable opportunities to investors.

Keywords: return predictability, asset pricing, market efficiency, bond risk premia, momentum, value, carry.

JEL Classification: G11, G12

Suggested Citation

Baltussen, Guido and Martens, Martin and Penninga, Olaf, Predicting Bond Returns: 70 Years of International Evidence (June 19, 2020). Financial Analysts Journal, 2021, 77(3): 133-155., Available at SSRN: https://ssrn.com/abstract=3631109 or http://dx.doi.org/10.2139/ssrn.3631109

Guido Baltussen (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Martin Martens

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands
(+31)10-4088929 (Phone)

Olaf Penninga

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

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