Abstract
This article studies whether the government bonds portfolio developed based on bonds duration produces abnormal returns in London Stock Exchange fixed income market during the phase of double-dip recession and COVID-19. The sample consists of UK conventional gilts traded from February 2004 till February 2021. The daily data is obtained from Thomson Reuters / Refinitiv Eikon. For this study, the data is divided into two subsamples July 2009-December 2018 and December 2019-February 2021. The findings reveal that all the bonds produced abnormal returns during the complete sample and sub-sample period when returns of UK gilts 1 year maturity are kept as a proxy for risk-free and 50-year maturity bond as a proxy for the market return. However, R2 shows weak model of portfolios with durations 2 and 3, which indicates that bondholders do not prefer to invest in gilts with these durations during the growth phase. The second sub-period results show weak portfolio returns with 3, 4, 8, and 20 years of durations during the pandemic. This indicates that bondholders tend to be conservative for short-term gilts due to low and negative yields.
Keywords
Bonds’ duration, UK gilts, Bond portfolio, COVID-19
DOI
https://doi.org/10.54784/1990-6587.1240
Journal of Economic Literature Subject Codes
G110, G120
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Mughal, R. A. (2021). Bonds duration and COVID-19: A study on United Kingdom conventional gilts. Business Review, 16(1), 55-75. Retrieved from https://doi.org/10.54784/1990-6587.1240
Submitted
March 02, 2021
Published
August 16, 2021
Included in
Business Administration, Management, and Operations Commons, Corporate Finance Commons, Finance and Financial Management Commons
Publication Stage
Published
