Bullets
A systematic fixed income approach—Bullets—defined by explicit rules, testable on history, and fragile when costs or regimes change.
Overview
In a bullet portfolio, all bonds have the same maturity date T thereby targeting a specific segment of the yield curve. The maturity can be picked based on the trader’s outlook on the future interest rates: if the interest rates are expected to fall (i.e., the bond prices to rise), then picking a longer maturity would make more sense; if the interest rates are expected to rise (i.e., the bond prices to fall), then a shorter maturity would be more warranted; however, if the trader is uncertain about the future interest rates, a more diversified portfolio (e.g., a barbell/ladder portfolio - see below) is in order (as opposed to a bullet portfolio).
Bullets sits in the Fixed Income chapter of the systematic catalog. On QUSXFI we treat it as a testable hypothesis: specify entries, exits, sizing, and costs—then ask whether edge survives out-of-sample scrutiny.
Discretionary traders often arrive at similar ideas intuitively; the quantitative version forces you to write the rule before you see the next bar. That discipline is what makes results reproducible—or exposes them as luck.
Based on the research catalog 151 Trading Strategies (Kakushadze & Serur, 2018), section 5.2. Educational summary—not a replication of the full formal definition.
How the Strategy Works
Data alignment for Bullets (rolls, corporate actions, holiday calendars, contract specs) is part of the strategy, not housekeeping.
In Fixed Income, microstructure around opens, rolls, and fixes can dominate small statistical edges on Bullets.
Implementation and Research Process
Include roll and repo financing in Bullets; carry trades invert overnight.
Decompose Bullets into signal, portfolio construction, and execution modules—each must be path-independent given the same historical tape.
Log regime tags beside Bullets performance slices—vol level, rate cycle, liquidity stress.
Risk: What Breaks This Strategy
Duration and convexity on Bullets overwhelm small spread edges when rates gap on CPI or central bank surprises.
Credit spreads are correlated in stress—diversification across issuers is partial, not promised.
Roll and repo financing can invert carry trades overnight.
Common Mistakes to Avoid
- Erasing losing Bullets months instead of documenting regime breaks—that is how research firms stop learning.
- Reporting Bullets backtests without fees, slippage, and realistic fill rules.
- Using academic §5.2 definitions for Bullets while ignoring borrow, margin, or contract specs.
- Confusing this educational Bullets summary with compliance-approved investment advice.
How to Study This Strategy
- Write a one-page Bullets failure memo: three break modes and early warning signs.
- Add conservative costs to Bullets; rerun with 2× spreads and compare drawdown paths.
- Compare Bullets to one sidebar alternative net of costs—document why you chose this structure.
- List every data field Bullets needs in Fixed Income; verify point-in-time integrity.
- Restate Bullets (§5.2) as numbered rules another researcher could implement cold.
Key Takeaways
- Bullets embeds duration, convexity, and spread risk—small carry edges vanish on one rates gap.
- Curve shape and roll-down assumptions for Bullets must match the live roll calendar, not a smooth back-adjusted series.
- Repo and financing can invert carry trades overnight.
- Policy surprises dominate P&L more often than micro relative-value tweaks.
- Stress Bullets with parallel and twist shocks, not only historical replay.
Learning Tip
Chart the worst Bullets month beside the best; careers are shaped by the left tail, not the peak equity curve.
Explore related strategies in the sidebar or return to the full catalog.