Duration calculation: Three-minute macro*
Managing duration risk is important for all portfolios, so we modeled duration risk in equities. We also shed some light on what tech layoffs mean (or don’t mean) for the wider economy. Finally, we explain why the Bank of Canada’s aggressive monetary tightening relative to its peers may not be enough to prevent a recession.
Duration management—not just for fixed income anymore
With interest rates in restrictive territory and many global central banks nearing their terminal rates for the cycle, market narratives are increasingly being driven by monetary policy expectations, making duration management even more important. In the fixed-income space, metrics around duration are precise, but duration risk still exists in multi-asset and equity portfolios.
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A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.
Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.
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