Calculating the duration risk

FIXED INCOME

Nicolas Trindade, portfolio manager of the AXA Sterling Credit Short Duration Bond fund, argues duration will be a crucial factor for fixed income managers this year

Since January 2009, the sterling corporate bond market has returned 62%, which represents almost 10% on an annualised basis. This equity-like performance has come primarily from a combination of substantially tighter credit spreads (almost divided by four) and attractive carry from gilts. But 2014 looks set to be a very different year, characterised by lower total returns, with most of the focus likely to be on duration risk. With the UK economic recovery appearing to be taking hold, as demonstrated by GDP growth of 0.7% in the fourth quarter of 2013, we will see higher gilt yields by th...