What are short duration bonds?
A short duration bond is generally a bond with a short time to maturity. At AXA IM we define this period as 5 years or less. Short-term bonds generally carry less uncertainty because the principal is repaid more quickly and can be reinvested earlier. However, duration is more than just term to maturity.
Maturity versus duration
Maturity is simply the number of years left until the bond’s principal is repaid. Duration takes maturity into account but also bond coupon rates and yield. When coupons are included, the bond's duration number (in years) will always be less than the maturity number. Generally, bonds with shorter maturities or higher coupons will have shorter durations.
What does duration indicate?
Duration is considered an indicator of one of the key risks in fixed income investing – interest rate risk. The calculation of duration essentially measures how sensitive the value of future cash flows is to changes in interest rates. The shorter a bond’s duration, the less the bond’s price will change when interest rates move, thus short duration bonds are less exposed to interest rate risk.
Fixed income outlook: Is the market overly hawkish?
After the bond bear market of 2021, valuations look more attractive in an environment where interest rate rises may already be priced in.
Outlook 2022: Asian Credit - China Property rebound? Who will survive and can the damage stay contained?
Asia credit has been dominated by the struggles of China property developers in the second half of 2021. With bonds repriced significantly after Evergrande’s liquidity strain, China property has sing ...
Seven myths behind high yield bonds
Interest rates may be at or close to record lows, but there are still opportunities within fixed income