Bridge over ocean
1 January 2014 Financial Analysts Journal Volume 70, Issue 1

Long-Term Bond Returns under Duration Targeting

  1. Martin L. Leibowitz, PhD
  2. Anthony Bova, CFA
  3. Stanley Kogelman

Although most bond portfolios maintain a relatively stable duration over time and are thus implicitly or explicitly “duration targeted,” the distinctive nature of duration targeting (DT) is underappreciated. The authors’ theoretical DT model demonstrates that over multi-year horizons, annualized DT returns converge back to the starting yield, regardless of the rate path. For example, for almost all six-year holding periods since 1985, Barclays bond index returns have converged to within 1% of the starting yield.

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