Problem ahead for bond investors?

Bloomberg Barclays US Aggregate has a duration of over 6 (orange line) and a yield of just 2.5% (white line). If we see more corporate refinancing on the longer end (while rates are still low) and at some point a 50 or 100 year US treasury makes its way into the index (https://lnkd.in/gFvUF5g), this could be very problematic. 

 

Add to that a higher duration of Agency MBS if rates increase and prepayments slow (extension risk). 

 

This all looks like a huge amount of interest rate risk for investors with very little upside. The solution: Talk to your Portfolio Manager! 

Author: Paul McIntyre

Chief Compliance Officer

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