Quants miss the ‘obvious’: a safe-haven factor in bonds

After carry, the flight-to-quality factor – the ‘elephant in the room’ – is a key driver, a study says

Quants who comb fixed-income data for tradable patterns may have missed the most glaring of all: buy-side sprints to the safety of bonds when the broader markets get jumpy.

In a seven-month project, a team at BNP Paribas led by Julien Turc used a machine learning algorithm to tease out the critical factors propelling government bonds. The researchers found that buy-siders seeking safe-haven investments when the markets churn accounted for nearly half the movement in bonds.

“This flight-to