Factor Investing in Sovereign Bond Markets: Deep Sample Evidence

Abstract

We examine government bond factor premiums in a deep global sample from 1800 to 2020 spanning the major markets and maturities. Bond factors (Value, Momentum, Low-risk) offer attractive premiums that do not decay across samples, are persistent over time, and consistent across various market and macroeconomic scenarios. The factor premiums diversify to each other, as well as to bond or equity market risks. A combined multi-factor bond strategy provides the strongest risk-adjusted returns. These results strongly show a consistent added value of government bond factor premiums over a passive bond portfolio.

Keywords: factor investing, bond risk premia, asset pricing, market efficiency, momentum, value, carry, low-risk

JEL Classification: G11, G12