Wednesday, September 28, 2016

BlackRock sounds alarm about growing risk in Treasurys

Marketwatch reports:
The world’s largest asset manager joined the chorus of investors warning that expensive U.S. Treasurys could pose a danger to portfolios as the Federal Reserve moves closer to a rate increase and the Bank of Japan ramps up efforts to steepen the yield curve.

“It’s time to rethink the role of U.S. Treasurys in portfolios, and specifically to be cautious of long-duration Treasurys,” wrote Richard Turnill, global chief investment strategist at BlackRock, in a Monday note. “The risk-reward landscape for long-duration Treasurys is shifting.”

Duration measures the sensitivity of a bond’s price to changes in yield. As bond investors know, debt prices rise as yields fall and vice versa. Duration estimates just how much bond prices will change as the yield rises or falls. The longer the maturity, the longer the duration and the more sensitive a bond price is to changes in yield. That means that a small rise in yields can have an outsize impact on the value of long duration bonds in a portfolio.
Just a reminder.