Navigating the Bonds: Focus on Credit, Convexity, and Duration

The current perspective emphasizes a shift from viewing inflation as a long-term trend to a more stable, range-bound outlook. The analysis centers on mortgage bonds, highlighting the importance of understanding three key elements within the bond market: credit risk, convexity, and duration. Credit risk relates to the possibility of default when the bond matures, convexity addresses the method of return, and duration indicates the timeframe for repayment. This nuanced approach aids in effectively managing risk and optimizing bond investment strategies.