Yield Curve Momentum

Abstract

I analyze time series momentum along the Treasury term structure. Past bond returns predict future returns because of autocorrelation in both bond carry and yield changes. Yield curve momentum can largely be captured using a single bond return or yield change factor. Because yield changes are partly induced by changes in the federal funds rate, yield curve momentum is related to FOMC post announcement drift. The momentum factor is unspanned by the information in the term structure today and is hence inconsistent with standard term structure, macrofinance and behavioural models, including models designed to explain momentum. I propose a potential resolution.