Ditching the 1951 Fed-Treasury accord ending government control of bond yields, the Fed selected and purchased trillions of dollars in long-duration bonds and mortgages.
Meantime, Treasuries with comparable 5-year duration came in over 7 percent while paper with 7.67 year duration rose 8.26 percent, far exceeding corporates and muni bonds with comparable duration as well as emerging market debt.
High-yield short duration bonds and senior bank loans (also known as leveraged loans) are both attractive for excess liquidity in the current low-yield environment.
This is especially true for longer duration bonds and bond funds.
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Shortening the duration of your bond portfolio means you receive cash sooner than longer duration bonds and therefore you can reinvest that cash sooner at higher interest rates in an inflationary environment.
Duration measures the amount of time until a bond matures, and longer-duration bonds fall harder when interest rates rise.
The yield disparity between 10-year Treasuries and BB bonds of comparable duration holds near 350 basis points, an attractive working model.
This is a fundamental characteristic of bonds which is calculated and quantified by the duration of the bond.
Maintain an overweight in high-quality credits and prefer low-duration bonds in high-beta names.
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It's an integral part of a plan announced by European Central Bank President Mario Draghi last week to buy bonds with a duration of between one and three years.
One strategy for playing it safe is to shorten the duration of your muni holdings and consider owning bonds that are backed by a mix of general obligations from stable issuers and revenue bonds backed by specific cash-flow rich franchises.
Prices could slump as a major buyer steps to the sidelines, and for the minimal returns available in bonds more than a few years in duration, the risk of a years-long bull run reversing is too substantial for Fuss to flirt with.
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In 1994, those bonds that had had a duration of 20 suddenly had a duration of 40, and a price far below that which investors had paid.
All things equal, for typical bonds the longer the maturity the higher the duration (or price volatility from interest rate movements), and the smaller the coupon the higher the interest rate risk.
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