Original Research

Exploiting non-parallel risk premia in the South African sovereign bond market

Sanveer Hariparsad, Eben Maré
South African Journal of Economic and Management Sciences | Vol 27, No 1 | a5412 | DOI: https://doi.org/10.4102/sajems.v27i1.5412 | © 2024 Sanveer Hariparsad, Eben Maré | This work is licensed under CC Attribution 4.0
Submitted: 06 November 2023 | Published: 31 May 2024

About the author(s)

Sanveer Hariparsad, Department of Actuarial Science, Faculty of Natural and Agricultural Sciences, University of Pretoria, Pretoria, South Africa
Eben Maré, Department of Mathematics and Applied Mathematics, Faculty of Natural and Agricultural Sciences, University of Pretoria, Pretoria, South Africa


Background: This study focuses on diversifying fixed income attribution beyond yield and duration by identifying new risk premia applicable to various investment strategies.

Aim: To identify cross-sectional bond risk factors in the South African sovereign bond market, capitalising on non-parallel shifts during high-risk macroeconomic events, developing a strategy to extract persistent alpha from higher order interest rate risks and disproving the strong efficient market hypothesis.

Setting: This study finds that during high-risk macro events, non-parallel shifts increase in frequency. Empirical evidence suggests that post the 2008 financial crisis, there have been increased occurrences of risk-on/off events and researchers believe high risk macro events will increase in prominence. As such, most active US fixed income managers have reduced duration risk (from parallel shifts) in favour of alternative risk premia.

Method: This study exploits slope and curvature risks, by utilising a butterfly strategy. Ten bond risk factors are back-tested and analysed during interest rate cycles, curve scenarios and risk-off periods from 1998 to 2023.

Results: The top-ranked strategies displayed strong and persistent outperformance over the bottom-ranked strategies for most of the bond factors especially during risk-on episodes. The Bond All-Factor Rank demonstrated improved diversification by balancing upside and downside risks. Trade costs are an important factor that requires pragmatic management.

Conclusion: Geopolitical risks are increasing in frequency and developing a strategy to exploit non-parallel risk premia is an attractive proposition.

Contribution: This study identified new bond risk factors beyond the conventional spread factor to extract non-parallel risk premia.


fixed income strategies; factor investing; risk premia; slope; curvature; non-parallel shifts; curve scenarios

JEL Codes

C41: Duration Analysis • Optimal Timing Strategies; E43: Interest Rates: Determination, Term Structure, and Effects; E44: Financial Markets and the Macroeconomy; G12: Asset Pricing • Trading Volume • Bond Interest Rates

Sustainable Development Goal

Goal 8: Decent work and economic growth


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