Decomposing Local Currency Bond Returns into Carry and Rolldown for Sharpe

Summary

The document raises a fixed-income analysis question: how to estimate expected returns on local currency government bonds by separating carry from rolldown, then compare those returns with a risk-free rate and historical volatility to form an annualized Sharpe ratio. It identifies the desired components and the intended risk-adjusted performance measure, but does not provide formulas, data choices, or a worked calculation.

As a result, it offers a research question rather than a complete method or empirical result. It does not explain how to construct the yield curve, define the holding period, account for currency effects, or annualize returns and volatility consistently. Those choices would be needed to make bond comparisons meaningful. The proposed use of historical volatility also leaves open how the estimation window should be selected and whether it captures changing interest-rate risk. Readers can use the question to frame an analysis, but the document itself supplies no evidence that the resulting Sharpe estimates are reliable or comparable across bonds.

Key ideas

• The question concerns estimating local currency government bond returns from carry and rolldown.
• It proposes comparing expected return with a risk-free rate to form a Sharpe ratio.
• Historical volatility is identified as the risk input, but its estimation method is unspecified.
• The document gives no calculation procedure, data, or empirical findings.

Tags

# Calculate Naive Sharpe Ratios for Local Currency Bonds By Looking at Expected Return in terms of Carry and Rolldown


# Calculate Naive Sharpe Ratios for Local Currency Bonds By Looking at Expected Return in terms of Carry and Rolldown












Want to calculate the Sharpe ratios for a series of local currency government bonds by breaking down the expected return in terms of carry and roll down. How would I look at explicitly calculating these components? Then want to use the risk free rate and the historic volatility to calculate an annualised Sharpe ratio.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.