Carry in Corporate Bonds
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Putting Credit Factor Investing into Practice
Hendrik Kaufmann; Philip Messow
- ?Quoniam Asset Management GmbH
- ?Robeco Quantitative Investments
Strategy in a nutshell
Universe: USD-denominated investment-grade bonds (Financials, Utilities, Industrials) from the ICE G0BC index. Exclude government and securitized bonds. Each month, sort by Option-Adjusted Spread (OAS) and go long the top quintile. Equally weighted, rebalanced monthly.
Economic rationale
The strategy captures carry premium—compensation for bearing credit and duration risk. High-OAS bonds offer higher yields due to elevated risk, which is well-compensated over time. Despite higher volatility, the carry factor delivers strong excess returns, justifying its role in active bond investing.
Backtest performance
Annualised return3%
Volatility4.29%
Sharpe ratio0.7
Maximum drawdown-12.5%