Most investment-grade bond portfolios have stable durations and can be regarded as “duration targeted” (DT). For DT portfolios, multiyear returns converge to the starting rolling yield if the yield curve undergoes a sequence of strictly parallel shifts. The theoretical convergence horizon is one year less than twice the duration target. The laddered portfolios favored by private investors are essentially DT, and surprisingly, their convergence return coincides with the starting yield of the ladder’s “top-rung” bond.

Author Information

Martin L. Leibowitz is managing director at Morgan Stanley Incorporated, New York City.

Anthony Bova, CFA, is executive director at Morgan Stanley Incorporated, New York City.

Stanley Kogelman is president and founder of Delft Strategic Advisors, LLC, Mount Kisco, New York.

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