Style Investing in Fixed Income

Abstract

Style investing has become part of the investing nomenclature for equity markets. To date, despite the massive size of fixed-income markets, little research has examined the efficacy of style-based investing in fixed income. In this article, the authors summarize a common style-based framework for capturing excess returns for both government and corporate bonds. Importantly, from an investor perspective, these style-based excess returns are highly diversifying with respect to the classic risk premiums in fixed-income markets (i.e., term premium and credit risk premium) and exhibit low macroeconomic sensitivities.