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Quants are coming for the bond market.  Or, at least, that's what the reports say.

Speak with anyone in fixed income, though, and you'll realize how non-trivial the problem is.  The risk vectors (e.g. duration, credit, convexity) may be well reasonably understood, but it's a rather large data and operational problem to crack the style premia.

You and I can buy the same Coca-Cola stock.  That may not be true with bonds.  And the day you go to market, the bond you want may not even be available.

Nevertheless, efficient vehicles for accessing different verticles of the bond market – from duration to credit quality to geography – may create an opportunity for applying quantitative signals at a sector level.

This week, we explore momentum, carry, value, reversal, and volatility siganls as applied to a global, multi-sector suite of fixed income exposures.  While by no means a completely comprehensive study, the results suggest that the application of these styles may bear fruit for tactical asset allocation (PDF).

⚡️Corey
 

Read of the Week
→ ACCELERATION: "Our main thesis is that momen- tum generates acceleration perhaps via positive feedback, and accelerated price increase is not sustainable, hence the reversal. Indeed, we show that accelerated price increase is a strong contrib- utor to not only poor future performance but also a higher probability of big reversals.  Stocks that experienced the highest accelerated returns over the last 1 year underperformed other stocks significantly."  Momentum, Acceleration, and Reversal


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