Duration management

Abstract

The process of duration management is a combination of different components. Economic trends play an important role, as do expectations regarding central bank policy. Technical analysis, which can be employed to improve the timing of trading decisions and to help set disciplined stop-loss levels, is also useful. The issuance calendar of government bonds (for example, Bund), investor flows and positioning, and the market sentiment are all relevant. It is worth noting that in past times of longlasting interest-rate trends, mainly the decreasing rates during the 1990s, investors used the low-inflation environment to overweight duration (versus benchmark), but this turned out to be counterproductive during the bear markets in 1994 and 1999.