Chart of the week

A focus on duration amid the nonstop rise in rates

This week’s chart looks at high yield bonds’ limited duration profile compared to investment grade bonds.

October 20, 2023 | 3 minute read

Duration comparison: Investment grade vs. High yield

Source: Bloomberg Finance, L.P., as of September 30, 2023.  Investment grade represented by the ICE BofAML U.S. Corporate Index. High yield represented by the ICE BofAML High Yield Master II Index

  • Duration has quickly moved to center stage as 2-Year and 10-Year U.S. Treasury yields hit their highest level since August 2007, punishing core fixed income returns and other rate-sensitive assets.
  • The S&P 500, whose performance has become increasingly concentrated in large cap, higher duration tech stocks, fell 5.6% since August 1, and the Agg dropped 4.9% (following its historic decline of 13.01% in 2022).1
  • Core fixed income’s long-held role as a portfolio ballast to volatile equity markets is increasingly being called into question as rates continue their relentless rise. Meanwhile, lower-duration, and higher-yielding fixed income assets such as high yield bonds, senior secured loans, and collateralized loan obligations (CLOs), have generated solid year-to-date returns.
  • As the chart shows, investment grade bonds are increasingly vulnerable to rising rates. Even as duration declined over the past year, it remains at 6.4 years, or nearly three years above that of high yield bonds.2
  • As investors accept that rates could remain elevated for longer, the need for attractive income with limited interest rate risk increases.

  • Bloomberg Finance, L.P., as of October 18, 2023.

  • Bloomberg Finance, L.P., as of September 30, 2023.

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