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Bridge over ocean
1 May 2014 Financial Analysts Journal Volume 70, Issue 3

Duration Targeting: No Magic for High-Yield Investors

  1. Martin S. Fridson, CFA
  2. Xiaoyi Xu

Over time, the annualized return of a duration-targeting, investment-grade corporate bond portfolio will nearly match its initial yield. A high-yield bond portfolio’s performance is not similarly predictable. Furthermore, the difference between the high-yield universe’s initial yield and annualized return has a sharply negative bias. The absence of benefits from duration targeting has a bearing on valuation of the high-yield asset class and helps explain the instability in its investor base.

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