Abstract
Here’s an easy approach for institutional investors to describe future government bond returns—for both fixed-rate and index-linked bonds. In this <b><i>Practical Applications</i></b> report, <b>TeemuPennanen</b>, summarizes the findings of his article <b><i>Return Dynamics of Index-Linked Bond Portfolios</i></b>, which was co-written by <b>MattiKoivu</b> and published in the Fall 2014 issue of <b><i>The Journal of Portfolio Management</i></b>. The authors developed a simpler, more intuitive statistical model that explains almost 100% of monthly government bond returns across six markets in terms of just yield to maturity, or in some cases, yield to maturity and the underlying index. <b>Pennanen</b> is a professor of Financial Mathematics at <b>Kings College London</b>, and <b>Koivu</b> is Chief Risk Officer at <b>Nordic Investment Bank</b> in Helsinki.
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