Measuring the performance of government bond portfolios with index-based level, slope, and curvature factors

Martin Rohleder

doi:10.1002/rfe.70024

Measuring the performance of government bond portfolios with index-based level, slope, and curvature factors

Martin Rohleder^*

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

This paper introduces a three-factor interest rate risk model to improve the measurement of active bond fund performance. Traditional models assume a linear relationship between risk exposure and expected returns, leading to biases. By incorporating level, slope, and curvature factors derived from Treasury index returns, the proposed model better captures the nonlinear nature of bond returns. Empirical tests on passive and active US government bond portfolios confirm its accuracy in estimating passive style returns and active alpha. The study also provides the first performance analysis of fixed-income separate accounts, revealing their economic significance and superior value-added performance over mutual funds.

Original language	English
Article number	e70024
Journal	Review of Financial Economics
Volume	44
Issue number	1
Early online date	2 Sept 2025
DOIs	https://doi.org/10.1002/rfe.70024
Publication status	Published - Jan 2026

Bibliographical note

Publisher Copyright:
© 2025 The Author(s). Review of Financial Economics published by Wiley Periodicals LLC on behalf of University of New Orleans.

Funding

I thank Rainer Baule, Henk Berkman, Stephen Brown, Oliver Entrop, Iraj Fooladi, Daniel Giamouridis, Alexander Hillert, Christian Koziol, Markus Natter, David Maslar, Steffen Mayer, Fabio Moneta, Sebastian Müller, Andreas Neuhierl, Nial O'Sullivan, Andreas Rathgeber, Hendrik Scholz, Stijn van Nieuwerburgh, Andreas Walter, Florian Weigert, Marco Wilkens, and David Yermack for very helpful comments and suggestions. I am responsible for all remaining errors. Open Access funding enabled and organized by Projekt DEAL.

Funders
Marco Wilkens

Keywords

bond funds
curvature
level
performance
separate accounts
slope
Treasury indexes
yield curve

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Rev Financ Econ - 2025 - Rohleder - Measuring the performance of government bond portfolios with index‐based level slope Final published version, 500 KBLicence: CC BY

Cite this

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Measuring the performance of government bond portfolios with index-based level, slope, and curvature factors

Abstract

Bibliographical note

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Keywords

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