Duration and Convexity in Portfolio Management Professional managers utilize the concepts of duration and convexity to actively manage fixed income investments returns within a portfolio. This difference in yield is known as the credit spread.
Active Management Tactics for Enhancing Fixed Income Investments Returns
Even if a bond yields 4%, if inflation rises to 5%, the real return is actually negative. There is an inverse relationship between interest rates and bond prices; when new bonds enter the market with higher yields, existing bonds with lower rates become less attractive, causing their market value to drop.
However, the yield to maturity (YTM) provides a more holistic view, calculating the total return anticipated if a bond is held until it expires. The duration of a bond—sensitivity to interest rate changes—is the key metric for quantifying this exposure.
Active Management Tactics for Enhancing Fixed Income Investments Returns
These tactics allow investors to adapt to changing economic conditions. Inflation: The Silent Return Eroder Perhaps the most insidious challenge to fixed income investments returns is inflation.
More About Fixed income investments returns
Looking at Fixed income investments returns from another angle can help expand the discussion and give readers a second clear paragraph under the same section.
More perspective on Fixed income investments returns can make the topic easier to follow by connecting earlier points with a few simple takeaways.
