Look at duration again

The bond market is getting interesting again.

After five painful years, duration starts to offer a much better risk/reward. Andrew Spence from Aspen made a good point on this recently.

At current yields, the carry now provides a meaningful cushion. Even if 10-year yields move materially higher from here, part of the price decline is absorbed by the income.

What I find more interesting is the asymmetry. From current levels, the downside from another 100 bps rise in yields is relatively limited, while a 100 bps decline would generate a significantly stronger positive return.

This does not mean rates cannot move higher. Inflation remains the obvious risk. But in that scenario, bonds would probably not be the only asset class under pressure.

After five years of looking terrible, duration may finally be starting to look interesting again.

Markets reward investors for looking forward, not backward.

Disclaimer: This communication is for information purposes only and does not constitute investment advice, an offer or a recommendation to buy or sell any financial instrument. Past performance is not indicative of future results. Investments involve risks, including possible loss of capital.