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Exploring the role of duration management in credit portfolios
The volatility induced by the COVID-19 pandemic has thrown up potential opportunities for active fixed income managers.
As any bond investor will tell you, corporate bonds are made up of three components:
1) Credit risk (in the form of credit spreads) – the premium that investors demand as compensation for the additional credit risk associated with investing in corporates
2) Interest rate risk – the exposure to fluctuations in government bond yields
3) Liquidity risk – the ability to buy, or sell, corporate bonds versus government bonds
It is widely believed that active credit managers focus, first and foremost, on managing credit risk and that the interest rate risk (or duration) is managed to match the benchmark index of their portfolios.
L&G
Wednesday 28th February 2024
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