Masters in Business At the Money: Managing Bond Duration
12 snips
Sep 11, 2024 
In this conversation, Karen Veraa, Head of iShares US Fixed Income Strategy at BlackRock, shares her insights on managing bond duration amid fluctuating interest rates. She discusses the delicate balance investors must strike between yield and interest rate vulnerability. The conversation highlights the historical context of bond markets, including the unusual decline of both stocks and bonds in 2022, and provides strategies for navigating today's landscape. Karen emphasizes the advantages of intermediate duration bonds as market conditions evolve.
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Understanding Bond Duration
- Duration measures a bond's interest rate risk, quantifying potential price changes.
- A duration of 5 means a 1% interest rate rise leads to a 5% bond value drop.
2022 Bond Market Performance
- In 2022, bonds suffered significant losses due to rising interest rates.
- Long-duration bonds experienced losses exceeding 20%, impacting many investors.
Declining Interest Rate Trends
- Interest rates have generally declined for 40 years due to factors like improved inflation management and globalization.
- An aging population also contributes to lower rates through changing consumption patterns.