This Is No Time to Ditch Duration

With interest rates having fallen to such low levels over the course of the year and government bond returns having been very solid year to date, it’s left many investors questioning, Should they continue to have duration within their portfolios? And our answer would be a resounding yes.

With significant uncertainty on the global geopolitical stage, [and] significant potential volatility in equity and credit markets, government bonds duration serves as one of the few true offsets to equity and credit market volatility. Also, with central banks fully in easy mode around the globe, that will serve as an anchor for global government bond yields. And we don’t see the risk of a significant spike in yields over the near term. So it makes sense to have duration in the portfolio to mitigate downside risk. But how you take that duration really matters, and we suggest pairing your duration with credit assets. Credit doesn’t look particularly cheap in this environment either. So pairing the two together in this environment of significant uncertainty makes a lot of sense. They typically offset one another. One works when the other is out of favor and vice versa, so pairing the two together gives you a smoother ride in the bond portfolio over time.