Factor-based investing in government bond markets: a survey of the current state of research


Factor investing has become very popular during the last decades, especially with respect to equity markets. After extending Fama–French factors to corporate bond markets, recent research more often concentrates on the government bond space and reveals that there is indeed clear empirical evidence for the existence of significant government bond factors. Voices that state the opposite refer to outdated data samples. By the documentation of rather homogeneous recent empirical evidence, this review underlines the attractiveness of more sophisticated investment approaches, which are well established in equity and even in corporate bond markets, to the segment of government bonds.

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  1. 1.

    The terms “sovereign” and “government” bonds are used interchangeably throughout this article.

  2. 2.

    Traditional approaches in the sovereign bond space primarily included affine term structure models as well as macroeconomic and latent risk factors.

  3. 3.

    See Ludvigson and Ng (2009), who provide a summary of macrofactors in bond risk premia.

  4. 4.

    The term spread is also often used as a sorting variable in carry factor definitions.

  5. 5.

    The Cochrane and Piazessi (2005) factor loses its explanatory power as well when value and principal components are present in the regression.

  6. 6.

    Interestingly, when carry is included in the regression of the time series-level portfolios on the country Cochrane and Piazessi (2005) factor, this factor is not significant anymore.

  7. 7.

    Until 1998, they use bonds issued in Deutsche Mark, afterward Euro or USD.


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Views expressed in this paper are those of the authors and do not necessarily reflect those of Deka Investment or its employees. We acknowledge the outstanding research assistance of Gurur Akbas, and we are very grateful for the comments made by Michael Wegener.

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Correspondence to Demir Bektić.

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Bektić, D., Hachenberg, B. & Schiereck, D. Factor-based investing in government bond markets: a survey of the current state of research. J Asset Manag 21, 94–105 (2020). https://doi.org/10.1057/s41260-020-00156-3

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  • Government bonds
  • Sovereign bonds
  • Factors
  • Anomalies
  • Risk premia
  • Style investing

JEL Classification

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  • G12
  • G14
  • G15