Bootstrapping the relative performance of yield curve strategies

ABSTRACT This paper assesses the relative performance of yield curve strategies involving bullet and barbell portfolios due to changes in the shape of the yield curve via shocks to the Dow Jones index. We employ three different yield curve models and bootstrap the bond portfolio performance using a block bootstrap approach to compute the 66% confidence intervals. We allow for comovement among the yield curve factors. This paper demonstrates that a new parameterization we propose yields tighter confidence intervals than the usual approaches. In addition, we show that the shape of the confidence curves with respect to changes in terms to maturity, coupon rates and market changes depends on the choice of the yield curve parameterization. This finding yields several important implications for bond portfolio strategies.