The framework
The US Fixed Income Allocation Model is a signal-conditional fixed-income allocation framework. The 70% core (AGG) is a permanent broad-market bond anchor; the 30% overlay rotates monthly across three legs (HYG, TLT, BIL) based on two independent signals — a rate-environment vote and a relative-momentum comparison between credit and duration. The model output is a monthly answer to "which overlay sleeve should this 30% hold this month" — not which bond ETF to buy long-term.
The architecture is intentionally simple: two signals, three possible overlay states, no continuous tilts. This was the smallest decision surface that preserved Sharpe lift over a fixed-mix B1 benchmark across the 2008–2026 walk-forward.
Architecture
Core (70%, permanent): iShares Core U.S. Aggregate Bond ETF (AGG). Held continuously; never trades. Provides the broad-market duration and credit baseline that any institutional fixed-income mandate would carry.
Overlay (30%, rotating): one of three sleeves held for the full month and reviewed at month-end.
- HYG — iShares iBoxx $ High Yield Corporate Bond ETF. Selected when the rate vote is favorable AND relative momentum favors credit over duration.
- TLT — iShares 20+ Year Treasury Bond ETF. Selected when the rate vote is favorable AND relative momentum favors duration over credit.
- BIL — SPDR Bloomberg 1-3 Month T-Bill ETF. Selected when the rate vote is unfavorable. Acts as a cash-equivalent defensive leg.
Signal construction
Rate vote (3 components, threshold 2 of 3): three binary checks combined via majority vote.
- Yield curve slope positive: the 10-year minus 2-year Treasury spread is positive (a non-inverted curve, which historically associates with risk-on credit and duration environments).
- TLT 6-month trend positive: trailing 6-month return on TLT is positive (long-duration price action is constructive).
- TIP 6-month trend positive: trailing 6-month return on TIP is positive (real-yield-bearing instruments are performing, suggesting inflation expectations are not derailing the rate path).
A vote of 2 or 3 is favorable — the overlay is allowed into the risk sleeves (HYG or TLT). A vote of 0 or 1 is unfavorable — the overlay rotates to BIL.
Relative momentum (binary): the trailing 3-month return on TLT minus the trailing 3-month return on HYG. A positive spread routes the favorable-rate overlay to TLT; a negative spread routes it to HYG. Relative momentum does not govern when the rate vote is unfavorable — BIL takes precedence.
State machine
State decisions are made on the last business day of each month using closing-price data through that date. There is no intra-month re-evaluation and no minimum hold period — if both signals shift on a single month-end the overlay shifts on the first trading day of the new month. Transaction-cost modeling assumes 5 basis points per one-way turnover on the 30% overlay notional, which is the canonical institutional bond-ETF assumption.
Academic anchors
The framework draws on the carry-and-momentum literature adapted for fixed income: Koijen, Moskowitz, Pedersen, Vrugt on carry as a unifying cross-asset signal; Asness, Moskowitz, Pedersen on momentum's persistence across asset classes; and the term-structure literature on yield-curve slope as a leading credit-spread indicator. The decision to express the framework as a 70/30 core-plus-overlay rather than a single-leg switching model reflects institutional practice and reduces sensitivity to single-month signal errors.
Pre-registration document and parameter robustness evidence: FI sleeve pre-registration (FI-3 slice). A condensed PDF for institutional review is in progress and will appear under Research Library.