Masters in Business Team Favorite At the Money: Managing Bond Duration
22 snips
Jan 1, 2025 
Karen Veraa, Head of iShares US Fixed Income Strategy at BlackRock, dives into the intricacies of managing bond duration in a fluctuating interest rate environment. She discusses the challenges posed by rising and potentially falling rates and examines how these affect bond performance. Veraa shares strategies for investors, including the benefits of bond ladders and rethinking cash positions. Additionally, she explores the impact of Federal Reserve rate hikes and the advantages of locking in long-duration bonds as a response to market volatility.
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Understanding Bond Duration
- Duration measures a bond's interest rate risk, quantifying potential price changes due to rate fluctuations.
- A duration of 5 means a 1% rate increase leads to a 5% price drop, but this is just an average.
2022 Bond Market Performance
- In 2022, bonds experienced one of their worst years, with the aggregate index down 13%.
- Long bonds suffered even more, with 20+ year treasuries down over 20%, impacting investors who sought refuge from zero-interest-rate policies.
The 40-Year Bond Bull Market
- A 40-year bond bull market, driven by factors like better inflation management, globalization, and an aging population, saw declining interest rates.
- This period is likely unmatched in modern history and unlikely to repeat soon.