Treasury bond yield: a time series analysis and moving windows

Abstract

This paper seeks to identify a consistent strategy for investing in government bonds using moving windows and varying window sizes. To this end, the cumulative returns and risk-return ratio of 46 bonds with maturity dates after 12/31/2026 were analyzed. Ten different window sizes ranging from 1 month to 60 months were considered. The results showed that, for shorter-term investments, the Tesouro Selic is the security with the best return and lowest risk. For medium-term investments, the Tesouro Prefixado presents the best performance in terms of return. For long-term investments, the Tesouro IPCA+ (with the highest cumulative return) and the Tesouro IGPM+ with Semiannual Interest (highest Sharpe index) stood out. In this sense, investors with greater risk tolerance and a longer investment horizon may consider the Tesouro IPCA+ or Tesouro Prefixado, which offer the potential for higher returns, but with greater volatility. To forecast future returns, Arima models were used. The Arima models were only able to capture the trend, mainly for the Tesouro Selic 2029. Regarding the Tesouro Prefixado 2029 and the Tesouro IPCA+ 2035, the Arima models did not demonstrate good predictive capacity. For future research, a portfolio analysis to balance risk and return and other types of time series models to predict future returns, are suggested.