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Will duration risk rear its head for bond investors? 

May 4, 2016

Eric Platt, The Financial Times

As government bond yields have tumbled and the value of sovereign debt with yields below zero ballooned to over $8tn, investors are confronted with stark choices as they seek returns.

While many fund managers have shifted into lower quality bonds in the hunt for juicier yields, others — including pension and insurance companies required to stick to better quality borrowers — have ploughed into longer-dated bonds in their quest.

So far, the strategy has paid off handsomely, with government debt maturing in more than 10 years returning 12.2 per cent this year, outpacing stock markets in the US, Europe and Asia.

The duration on the Barclays global aggregate bond index hit a record high of 6.8 years this month. At the same time, the yield on the index has crumbled to 1.44 per cent from 4.24 per cent a decade ago.

However, it is a strategy that carries risks, especially if the Federal Reserve confounds current market expectations and raises interest rates more aggressively this year. Read more

 

 
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