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Duration troubles

Fixed income investing is perceived as the safest way to put money ti work. First of all, it’s based on a legal agreement between borrower and creditor, with specific terms, it produces predictable cash flow and has a maturity. But that doesn’t mean it’s not volatile throughout the life of the agreement. If you look at the chart below, you can see that from 1979 till 2021, the long end of the US treasury curve had very good years in average, enjoying the downtrend in official rates from the Volcker era. But in 2022 things changed, and interest rates may be trending up again, like they did in the 60’s and 70’s and therefore, bond total returns are suffering. 2024 is already the 3rd worst year since 1919 for the 30 year bond and it’s beyond 1 standard deviation from the average over the same period. And that’s just through interest rate risk. The current credit cycle is one of the longest we’ve seen since the creation of the junk bond yield market. Tough times ahead for bond investors.


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