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Business Review

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

Journal of Economic Literature Subject Codes

G110, G120

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Published Online

August 16, 2021

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