Chart of the Month: Duration of the Bloomberg Barclays U.S. Aggregate Index

Source: PIMCO, Bloomberg

Market Observations

The Bloomberg Barclays U.S. bond index is a widely used benchmark that most institutional investors, asset managers and investment consultants use to track the performance of the investment-grade bond market. Since the 2008-2009 financial crisis, there have been some significant changes in the index that have altered its risk-reward profile for investors. One of the most notable changes has been an increase in the duration of the bond index in recent years. Duration, which is a measure of interest rate sensitivity, has extended from roughly five years to over six years over the last decade. The duration extension is largely due to the prolonged period of low interest rates and increased Treasury issuance after the financial crisis. While duration will vary over time, the recent increase is noteworthy, particularly since it coincides with some of the lowest interest rates in recent history. Generally speaking, the higher the duration, the more a bond’s price will drop as interest rates rise (and vice versa). While this has been good news for bond investors in the current market environment, it will bring a new set of challenges when rates rise at some point in the future.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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