Testing the strategy: How backtesting shapes systematic fixed income performance
Systematic fixed income strategies have moved rapidly into the mainstream—but their success hinges on one crucial discipline: rigorous backtesting. In markets defined by sparse data, complex instruments, defaults, and liquidity shocks, traditional simulation approaches often miss the nuances that determine whether a strategy succeeds in live trading.
This white paper explores how leading fixed income managers build trustworthy, bias-resistant backtests, navigate the unique data and structural challenges of credit markets, and validate strategies across multiple market regimes. It examines the techniques, pitfalls, and best practices that distinguish robust research from misleading historical simulations. Discover how stronger backtesting can materially improve performance, risk control, and investor confidence.
Get practical guidance on how systematic fixed income managers:
• Address data limitations through proxies, synthetic histories, extended time series, and point-in-time datasets.
• Navigate corporate actions, calls, mergers, defaults, and recovery values to prevent distortions in historical simulations.
• Strengthen model reliability with out-of-sample testing, walk-forward analysis, cross-validation, and disciplined parameter tuning.
• Incorporate real-world frictions—including bid-ask spreads, liquidity constraints, turnover considerations, and market impact.
• Avoid common pitfalls such as overfitting, survivorship bias, look-ahead errors, and excessive data mining.
• Build confidence with backtests that survive diverse credit cycles, crisis periods, and shifting market structures.
Access expert backtesting insights
Discover how rigorous, precisely engineered backtesting can help you separate winning fixed income strategies from those that don’t hold up under scrutiny—so you can deploy capital with greater confidence, resilience, and transparency.
