Rates Factors and Global Asset Allocation
Journal of Fixed Income, Winter 2021, Vol. 30(3), pp. 6-25
Posted: 30 Jul 2020 Last revised: 11 Feb 2021
Date Written: June 22, 2020
Style factors that are prominent in other asset classes, such as carry, value, momentum, and defensive, do extend to the fixed income domain as well. We investigate factor investing across global government bonds and the use of such rates factors for a multi-asset investor. These rates factors significantly improve the investment opportunity set of investors, representing valuable tail hedges and offering diversification potential. Furthermore, complementing conservative multi-asset strategies by rates factors can enhance returns and reduce the likelihood and severity of downturns not only in-sample, but also in out-of-sample portfolio simulations.
Keywords: Factor-based models, style investing, fixed income, structured finance
JEL Classification: G11, G12
Suggested Citation: Suggested Citation