Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Subscribe Now
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Portfolio Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Subscribe Now
  • Log in
The Journal of Portfolio Management

The Journal of Portfolio Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Factor Investing in US Sovereign Bond Market: A New Generation of Conditional Carry Strategies with Applications in Asset-Only and Asset-Liability Management

Jean-Michel Maeso, Lionel Martellini and Riccardo Rebonato
The Journal of Portfolio Management Quantitative Special Issue 2020, jpm.2019.1.115; DOI: https://doi.org/10.3905/jpm.2019.1.115
Jean-Michel Maeso
is a senior quantitative researcher at EDHEC-Risk Institute in Nice, France
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: jean-michel.maeso@edhec-risk.com
Lionel Martellini
is a professor of finance at EDHEC Business School in Nice, France
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: lionel.martellini@edhec.edu
Riccardo Rebonato
is a professor of finance at EDHEC Business School in London, UK
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • For correspondence: riccardo.rebonato@edhec.edu
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.
Don’t have access? Sign up today to begin your trial to the PMR platform 

Abstract

This article provides a detailed analysis of the theoretical, statistical, and implementation challenges related to factor investing in the US sovereign bond markets, with a focus on the level factor, which explains for any maturity the largest fraction of differences in bond returns over time. Using a comprehensive database of individual bond returns in the United States covering the 1975–2018 sample period, the authors find that a conditional version of a carry strategy based on a time-varying exposure to the level factor can generate up to 210 bps of excess performance (gross of transaction costs) over the benchmark and a significantly higher Sharpe ratio. Overall, their results suggest that even in a single-issuer universe with highly correlated bond returns, and after accounting for transaction costs, conditional investing strategies based on second-generation return-predicting factors can lead to robust benefits from both asset-only and asset-liability management perspectives.

TOPICS: Analysis of individual factors/risk premia, factor-based models, style investing

Key Findings

  • • Conditional carry strategies based on second-generation return-predicting factors generate excess performance with respect to both unconditional carry strategies and conditional carry strategies based on the slope of the yield curve.

  • • These strategies remain profitable when implemented at a CUSIP level, even when transaction costs and long-only constraints are accounted for, and show particularly strong levels of outperformance in increasing interest rate environments and in bear equity markets.

  • • For liability-driven investors, these conditional carry strategies can be used to generate dynamic active duration bets with respect to the liability benchmark and substantially outperform a strict duration-matching strategy with relatively modest levels of tracking error.

  • © 2019 Pageant Media Ltd
View Full Text

Don’t have access? Register today to begin unrestricted access to our database of research.

Log in using your username and password

Forgot your user name or password?
Next
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Portfolio Management: 47 (2)
The Journal of Portfolio Management
Vol. 47, Issue 2
Quantitative Special Issue 2021
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Portfolio Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Factor Investing in US Sovereign Bond Market: A New Generation of Conditional Carry Strategies with Applications in Asset-Only and Asset-Liability Management
(Your Name) has sent you a message from The Journal of Portfolio Management
(Your Name) thought you would like to see the The Journal of Portfolio Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Factor Investing in US Sovereign Bond Market: A New Generation of Conditional Carry Strategies with Applications in Asset-Only and Asset-Liability Management
Jean-Michel Maeso, Lionel Martellini, Riccardo Rebonato
The Journal of Portfolio Management Oct 2019, jpm.2019.1.115; DOI: 10.3905/jpm.2019.1.115

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Factor Investing in US Sovereign Bond Market: A New Generation of Conditional Carry Strategies with Applications in Asset-Only and Asset-Liability Management
Jean-Michel Maeso, Lionel Martellini, Riccardo Rebonato
The Journal of Portfolio Management Oct 2019, jpm.2019.1.115; DOI: 10.3905/jpm.2019.1.115
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • A PROOF-OF-CONCEPT ANALYSIS OF THE BOND RISK PREMIUM
    • EMPIRICAL ANALYSIS OF THE CONDITIONAL CARRY STRATEGIES
    • Long–Short Results
    • Unconditional Performance of the Conditional Carry Strategies
    • Conditional Performance of the Conditional Carry Strategy Based on CiP Return-Predicting Factor
    • Asset-Liability Perspective
    • CONCLUSIONS AND SUGGESTIONS FOR FURTHER RESEARCH
    • ACKNOWLEDGMENT
    • ADDITIONAL READING
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Does Factor Investing Improve Investor Welfare? A Multi-Asset Perspective
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • News
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 0095-4918 | E-ISSN: 2168-8656

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies