Many investors discover during their investment journey that part of their financial product returns come from the bond market. Today, we introduce the riding strategy, one of the most watched bond selection strategies in bond trading.

What is the riding strategy?

How to apply it?

What are its advantages?

Facing the current volatile market, many investors favor relatively stable bond assets when allocating their portfolios. In the bond market, one bond selection strategy that has garnered significant attention is the riding strategy. Today, let's discuss what the riding strategy actually is.

The riding strategy, also known as the yield curve riding strategy, involves buying and holding long-term bonds when the yield curve is relatively steep. As the remaining maturity of the bond shortens, the yield to maturity naturally declines, and the bond price rises accordingly. By selling the bond before maturity, investors can achieve excess returns.

Compared to the strategy of buying short-term bonds and holding them to maturity, the riding strategy experiences greater valuation fluctuations during the holding period, and the holding return may turn negative by the end of the period. Therefore, the riding strategy requires higher compensation in terms of returns. When applying this strategy, investors should select bonds or timing points where the yield difference between adjacent maturities is significant—that is, choosing the steepest segment of the yield curve—where the riding effect of the bond will be more pronounced.

Additionally, when the market is volatile or lacks a clear short-term direction, the riding strategy offers two advantages. On one hand, investors can earn higher coupon yields from long-term bonds compared to short-term bonds, along with additional returns. On the other hand, the riding strategy can mitigate risks brought by fluctuations in short-term yields, serving both offensive and defensive purposes, thereby helping investors achieve more substantial returns.

It is important to note that investors using the riding strategy should also pay attention to market risks. If short-term interest rates rise sharply, it may lead to mark-to-market losses. However, if the bond is held to maturity, the yield to maturity at the time of purchase can still be secured.