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Pattern of Higher Returns for Bonds Missing in Recent Years

Gerald Buetow Jr., Frank Fabozzi and Brian Henderson assert in the Fall 2010 Journal of Fixed Income that the pattern of higher returns and lower standard deviations for bonds during expansive monetary policy periods was not present in recent years.

Gerald Buetow Jr., Frank Fabozzi and Brian Henderson assert in the Fall 2010 Journal of Fixed Income that the pattern of higher returns and lower standard deviations for bonds during expansive monetary policy periods was not present in recent years.

This pattern suggests that either the linkage between monetary policy and bond returns has changed or that the previously documented results arose spuriously because of the historically high yield curve in the 1970s and early 1980s.

By analyzing changes in the shape of term structure across policy periods, they purport to demonstrate that changes in level are particular to the early sample period while changes in slope and curvature are consistent across periods.

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