Duration Risk

[bmcgonig]

Just saw this on twitter and thought it's a great chart to show interest rate risk versus duration.


Losses since July 11
1-3 Yr: -0.6%
3-7 Yr: -3.5%
7-10 Yr: -7.4%
10-20 Yr: -10.2%
20+ Yr: -17.5%
25+ Zero: -24.8%

 

[bmcgonig]

Year to date:

 

[haha]

Helpful charts. Thanks.

Ha

 

[audreyh1]

I'm not sure how enlightening that is, however.

For example, DODIX, an intermediate duration diversified bond fund (4.25 years avg duration), is up 5.25% YTD.

Now, if you didn't know that it lost 1.37% in the past month, you'd probably think that was great. And it is. So what if it was up 6.8% YTD on 11/4/16?

It's really important to keep short term sudden moves in context.

OK - so there was a huge rally in treasuries during the summer, and it reversed.

 

[bmcgonig]

I'm not sure how enlightening that is, however.

For example, DODIX, an intermediate duration diversified bond fund (4.25 years avg duration), is up 5.25% YTD.

Now, if you didn't know that it lost 1.37% in the past month, you'd probably think that was great. And it is. So what if it was up 6.8% YTD on 11/4/16?

It's really important to keep short term sudden moves in context.

OK - so there was a huge rally in bonds during the summer, and it reversed.

Yes. Bonds went up and went down. But of course the idea is not to show bonds as a group, but rather bonds as separate durations and their accompanying risk.

 

[audreyh1]

Yes. Bonds went up and went down. But of course the idea is not to show bonds as a group, but rather bonds as separate durations and their accompanying risk.

Not all bonds are treasuries, and not all bond classes behave the same, just like not all durations behave the same. Which is why I think it's also useful to look at diversified bond funds or indexes and how they behave during certain market events.