The Drivers of Global Government Bond Returns

This paper examines the relation between forward rates and expected returns of global government bonds. We find that current forward rates contain reliable information about differences in future realized returns across government bonds of different maturity ranges and currencies of issuance. Motivated by these findings, we examine US and global portfolios that vary their exposures to maturity and currency of issuance by systematically emphasizing bonds with higher forward rates. We find that such dynamic yield curve selection and positioning can add value for investors over the long run and in different interest rate environments.