A plain rule that held 10-year US Treasuries only while their trend was up made 5.60% a year from November 1962 to December 2025, with coupons counted. Holding the bonds throughout made 5.75%. Both figures are before costs and taxes. The rule's worst fall from a peak was 14.8%, against 26.1% for holding.
That rule is one example of systematic bond investing: bond decisions made by written rules, tested on past data. This guide states the rule in full and shows all 54 exits, the times it moved from bonds to Treasury bills. It then checks period by period where the rule helped and where it failed.
What is systematic bond investing? Systematic bond investing means making bond decisions with written rules, tested on past data and followed the same way every time. A rule can set whether to hold bonds, how long they should be, which issuers to hold and how much of a portfolio they get.
The rule: at each month-end, hold 10-year Treasuries for the next month if their value, coupons included, is above its 10-month average. Otherwise hold Treasury bills. It made 5.60% a year before costs and taxes, against 5.75% for holding.
Where it helped: the worst fall was 14.8% against 26.1%. In 2022 the rule lost 0.9% while holding the bonds lost 16.4%.
Where it failed: leaving bonds cost money in 34 of 54 exits. The rule trailed holding in 3 of 7 periods. In 2009 it lost 13.5% while holding lost 10.1%.
What is systematic bond investing?
Systematic bond investing is systematic investing applied to bonds. A written rule makes each decision. The rule is backtested, meaning tested on past data, before it is used.
A rule can answer four questions about bonds:
Whether to hold bonds at all, or hold cash.
How long the bonds should be. Longer bonds move more when yields change, as bond prices and yields explains.
Which issuer to lend to, such as the US government or a company.
How much of the portfolio the bonds get.
A rule can read a bond's price trend, its yield, the yield curve or inflation. The backtest below reads only the price trend.
The rule we tested
The backtest asks one question: hold bonds, or hold cash? It uses the moving average rule that our trend following guide ran on US stocks.
We fixed the 10-month length before the test. Five lengths are compared further down.
Series: the 10-year Treasury yield, published daily by the Federal Reserve and held by FRED as series DGS10. We take the last business day of each month.
Bond return: each month we buy a new 10-year bond at par, meaning at its face value, with a coupon (its yearly interest) equal to the yield. We hold it for a month, then reprice it at the new yield with 9 years 11 months left. Coupons are included.
Cash: Treasury bills, loans to the US government repaid within a year. Returns come from Kenneth R. French's Data Library.
Signal: at each month-end, average the last 10 month-end values of the bond, coupons included. If the latest value is above that average, hold the bond next month. If not, hold Treasury bills.
Window: November 1962 to December 2025, which is 758 months. The first signal needs 10 month-ends of data. We end at the last full calendar year.
Scope: the rule is a plain illustration. It says nothing about how any portfolio or signal we publish is built.
The series is built from yields, not taken from a fund's prices, so it has no trading costs, fees or taxes.
Its yearly returns have a correlation of 0.99 with Aswath Damodaran's published 10-year Treasury bond returns for 1963 to 2025. The mean absolute gap, which ignores whether the series is above or below his, is 1.0 percentage point a year.
Ten-year Treasuries from 1962 to 2025
Source: FRED (DGS10); Kenneth R. French Data Library; YX Insights
The chart shows $1 invested at the end of October 1962. Holding the bonds grew it to $34.27, the rule to $31.19 and Treasury bills to $15.44. That is 5.75%, 5.60% and 4.43% a year.
The rule held bonds in 71.4% of months and bills in the rest. It trailed holding by less than 0.2 points a year. A point here means one percentage point.
An assumed cost of 0.05% per switch between bonds and bills lowers the yearly return from 5.60% to 5.51%. Costs of 0.1% and 0.25% give 5.42% and 5.15%. These costs are assumptions, not measurements.
The worst falls
Source: FRED (DGS10); Kenneth R. French Data Library; YX Insights
A drawdown is a fall from a previous peak. The chart shows how far each line sat below its own highest value, month by month.
Holding the bonds had its worst fall from July 2020 to October 2023, 26.1%, as yields rose. The rule's worst fall was 14.8%, from December 2008 to March 2010.
The rule did worse than holding in that stretch. It held bonds through the yield rise of early 2009, when their value fell 9.0% from January to May.
It then held bills from June to November, while the bonds gained 3.9%. It bought back in December 2009, the month the bonds fell 5.0%. Over 2009 the rule lost 13.5% and holding lost 10.1%.
Every exit the rule made
Source: FRED (DGS10); Kenneth R. French Data Library; YX Insights
Each bar is one exit, evenly spaced in date order. The bar is the Treasury bill return minus the bond's return while the rule was out, in points. Green bars above the line are exits that helped.
The 54 exits lasted from 1 to 14 months, with a median of 3. 20 helped and 34 cost money. Of the 20 that helped, 9 avoided a fall in the bond's value.
The best was a 14-month exit from February 2022. The bonds fell 10.8% in those months and bills gained 2.5%, so leaving was worth 13.2 points. Over 2022 the rule lost 0.9% and holding lost 16.4%.
The costly exits were mostly brief. Of the 26 that lasted one or two months, 2 helped. Of the 28 that lasted three months or more, 18 helped.
The largest cost was a one-month exit in November 2008. The bond gained 9.57% that month and bills gained 0.03%, so leaving cost 9.54 points.
Did the rule work in every period?
Source: FRED (DGS10); Kenneth R. French Data Library; YX Insights
The chart splits the record into seven periods and shows the rule's yearly return minus the yearly return from holding. The rule was ahead in four: 1962 to 1969, the 1980s, the 1990s and 2020 to 2025.
It was behind in three: the 1970s by 2.2 points a year, the 2000s by 3.0 and the 2010s by 1.3.
The 10-year yield peaked at 15.84% on 30 September 1981. Until then the rule made 3.44% a year against 2.83% for holding. After it, the rule made 6.53% against 7.03%.
Since 2010 the rule made 2.22% a year against 2.32% for holding, with a worst fall of 11.1% against 26.1%.
Holding lost money in 13 of the 63 calendar years from 1963 to 2025. The rule did better in 10 of them. In the 50 years when holding gained, the rule did better in 9.
Across 639 overlapping 10-year windows the rule came out ahead in 333, or 52.1%. Overlapping windows are not 639 separate tests.
Other lengths, other bonds and what the record cannot show
Only 9 exits avoided a fall in the bond's value, which is 9 events in 63 years. The test covers one country's government bonds and one long cycle of yields. It leaves out credit risk, the risk that a borrower does not repay.
Other lengths gave other answers. Each from its first signal, 6, 8, 12 and 14 months made 6.04%, 5.39%, 5.67% and 5.94% a year, against 5.60% for 10.
The 6 and 14-month versions beat holding. Worst falls ran from 11.6% to 14.8%.
Our trend following guide ran the same 10-month rule on TLT (the long-term US Treasury bond ETF, or exchange-traded fund, which trades like a share). The window was different, May 2003 to August 2026. The rule made 2.40% a year against 3.11% for holding, with a worst fall of 24.3% against 47.6%.
TLT lost 31.2% in 2022 with dividends counted, because its bonds are longer than 10 years.
Where the rule goes wrong
A trend rule acts after the price has moved. At the end of January 2022, the month-end before the 14-month exit began, the bonds were already 9.4% below their July 2020 peak.
Over 63 years the rule cut the worst fall from 26.1% to 14.8% and trailed holding by less than 0.2 points a year. It was behind in 3 of 7 periods. 34 of its 54 exits cost money.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
Multi-model Signals: a daily long-or-flat call on every name we cover. Each call shows how strongly our four models agree.
Research: company deep dives, macro commentary and essays on how we test.
Good places to start on the website:
Academy: more explainers like this one.
Start here: get our free weekly letter by email.
Macro & Megacaps Systematic Portfolio and Commodities: the two portfolios in detail.
Track record: live results since 3 August 2026, plus the ten-year backtest.
Upgrade: get the Systematic Portfolio, Multi-model Signals and research in full.
Common questions about systematic bond investing
What is systematic bond investing?
Systematic bond investing, also called systematic fixed income investing, means making bond decisions with written rules tested on past data. A rule can set whether to hold bonds, how long they should be, which issuers to hold and how much to hold. This guide tests one rule on 10-year Treasuries.
Does a trend rule work on bonds?
In this backtest it cut the worst fall but gave up a little return. A 10-month rule on 10-year US Treasuries made 5.60% a year before costs and taxes from November 1962 to December 2025, against 5.75% for holding. Its worst fall was 14.8%, against 26.1%. It trailed holding in 3 of 7 periods. One country's record cannot settle the question.
How was the bond return calculated?
Each month the test buys a 10-year Treasury at par, with a coupon equal to the month-end yield. It holds the bond for a month and reprices it at the new yield. Coupon income is included. The series has no trading costs, fees or taxes.
Is systematic bond investing the same as a bond index fund?
No. An index fund holds the bonds in its index whatever happens. A systematic approach changes what it holds by written rules, such as moving to Treasury bills when a trend turns down. The rules can also be tested on past data.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.