Riding the Canadian yield curve

Riding the yield curve, a trading strategy of buying long-term bills and sell them before maturity, has been a popular means to achieve excess returns over the buying-and-holding strategy. This paper looks at historic excess returns of Treasury Bill and Bond markets in Canada. Our empirical results indicate that, the riding yield curve strategy does offer very small excess returns, but these excess returns show that neither strategy stochastically dominates the other. Furthermore, these excess returns are very sensitive to the period of 1992/11 – 1997/11 on a risk-adjusted basis. Overall, our evidence does not show a superior performance by implementing the riding strategy over the past 15 years in Canadian market.