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Using Value and Momentum Factors in Individual Bond Portfolios

Article Quant Q&A · Author: the_brass_bottle
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Summary

The document concerns constructing a portfolio of individual bonds selected from a benchmark, with exposure to a chosen investment factor. The questioner seeks research on factor investing using actual bonds rather than exchange-traded funds or sovereign bond indexes, and describes a project based on a US aggregate bond benchmark.

The response points to research on factor investing in corporate bonds and notes that value and momentum factors discussed there are also applied to government bonds. It offers a starting reference rather than a portfolio construction recipe: there is no discussion of factor definitions, bond screening, weighting, transaction costs, risk controls, or performance evidence in the document. The suggestion is brief, so further study would be needed to adapt factor signals to a specific bond universe and benchmark.

Key ideas

  • The task is to build a factor-exposed portfolio from individual benchmark bonds.
  • Research on corporate bond factors may provide a starting point for individual bond selection.
  • Value and momentum are identified as factors also used in government bond markets.
  • The document does not explain factor implementation, portfolio weighting, or evaluation.

Tags

Fixed incomeFactor investingPortfolio construction
Full text
# Factor investing in government bonds


# Factor investing in government bonds












Could someone direct me to papers I can find on factor investing for construction of actual local bonds (not using etfs or sovereign bonds) in a portfolio for any local market. For me, I’m trying to create a bond portfolio for my project using the Bloomberg US Agg Total Return Value Unhedged USD benchmark. I am to create a 50 bond portfolio using bonds from that benchmark exposed to a factor of my choice. Having a trouble finding articles and where to start. Please provide me with information you might have. Thanks

## Answer by user42108 (score 1)

https://quant.stackexchange.com/a/68490

You could try "Factor Investing in the Corporate Bond Market" (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516322). The value and momentum factors they mention in the paper are also used in government bonds (which are the same thing as sovereign bonds).

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