Duration Can Also Work Against You
Jeroen Blokland | Oct 30, 2019 12:41
Bond yields have been going up lately, with the United States 10-Year Treasury yield rising to above 1.83%, up from 1.50% in early October. The German bund is up to -0.34% from below -0.70% in early September. This has hurt bond performance and is a gentle reminder that duration can also work against you. Less gentle is the drop of more than 20% of the Austrian government bond that matures in 2117, with a duration of no less than 54 years. The point? Government bonds are not a one-way bet.
Monetary easing seems to have come close to its limits at least for now, as signals suggesting global growth has bottomed steadily increase. With overall duration increasing significantly as yields fall, any uptick in bond yield will quickly lead to negative returns.
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