Not your father’s bond market

10.09.20

Chart of the Week – Not your father’s bond market

The yield to duration ratio can give you an indication of the level of risk in your bond portfolio, relative to its coupon return. The yield to duration ratio, found by dividing a bond's yield by its duration, represents the rise in interest rates required to counterweigh a bond’s return income (coupon).

The yield-to-duration ratio in the U.S. corporate bond market is sitting near a historical low. Widening credit spreads, or a shift higher in the risk-free curve of just 23 basis points, would create a capital loss similar to the annual coupon return. Investors face challenging portfolio construction decisions due to low coupons and historically high duration risk.

U.S. Corporate Bond Market Yield-to-Duration Ratio
Chart Showing U.S. Corporate Bond Market Yield-to-Duration Ratio
Chart Showing U.S. Corporate Bond Market Yield-to-Duration Ratio

Source: Bloomberg, Ivy Investments. The U.S. corporate bond market is represented by the Bloomberg Barclays US Aggregate Corporate Bond Index. Data shown is from January 1, 1989 through September 30, 2020. This chart is being provided as a general source of information for education purposes only, and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy.


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