Macro-Active Bond Mutual Funds

We document significant outperformance by government bond funds on important macro announcement days such as FOMC and GDP. The macro-day outperformance is persistent, larger during times of high macro disagreement and surprise, and stronger for active funds with larger idiosyncratic volatility. Their macro activeness also led them into record loss on September 16, 2008, when the FOMC kept the rate unchanged despite the Lehman default. Attributing the macro-day alpha to fund managers’ macro-timing skills, we provide evidence that fund managers do actively trade on their predictions of macro news, and their portfolio duration change can predict announcement-day yield curve change.