Fixed-income factor investing

Jeroen van Zundert and Philippe Vannerem

The increase in breadth and depth of global corporate bond markets has been one of the most remarkable capital market developments of the second decade of the 21st century. The total market value of investment-grade bonds included in a broad market index such as the ICE BofA global investment-grade index grew from USD6.6 trillion at the start of 2010 to USD11.8 trillion by the start of 2020. For the ICE BofA high-yield index, which includes higher-risk corporate bonds, the total market value went from slightly less than USD1.0 trillion to USD2.1 trillion. Global corporate bond markets have therefore nearly doubled in 10 years’ time, and 2020 is again a record year in terms of new issuance.

On the investment management side, despite a corporate bond being a rather technical and mathematically complex instrument, investment decision processes for bonds have remained often more discretionary and manual, based on fundamental analysis of the issuer by a credit specialist. Investment management practice for bonds has been lacking both the innovation and efficiency of integrated, widely connected and more automated processes that revolutionised other information-processing industries

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