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Fund Spy

A Brave New Bond World

Most of us have never seen a bond market like this.

There's a challenge creeping up on bond managers--and by extension fund shareholders--that has thus far been met with the sound of crickets, but it’s a big one.

Falling market yields would typically prompt the idea of dramatically shortening a portfolio's duration, and vice versa. Effectively, the idea would be to take less risk after high-quality bonds have rallied (when their yields fall) and to add risk after they've lost ground and their yields have gone up. In other words: Buy low, sell high.