A regime shift in bond markets: yield and duration

In today’s rate environment, investors are able to pick up yield without needing to necessarily take on significant duration risk. This is apparent when examining the relationship between bond yields and duration, and making a comparison to the recent low-rate environment. Across both the U.S. Aggregate and Investment Grade Corporate Bond indices, investors are presented with a more attractive yield-to-duration tradeoff.

Due to yield curve inversion, cash yields appear uniquely compelling, though duration exposure may be preferred in an environment of central bank easing. Also, holding duration exposure in portfolios provides important diversification benefits. This lack of potential price return combined with diminished diversification benefits has likely contributed to less appetite for cash in recent months.

Source: Bloomberg, as of 1/30/24

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The Verus Market Note provides market commentary along with relevant charts and graphs. Each week, we highlight a key story from the finance world that we believe will pique your interest. While these insights are meant to inform and enrich your understanding of the current market landscape, they should not be taken as direct recommendations for immediate portfolio adjustments.