Rolling Down the Yield Curve With Defined-Maturity Bond ETFs
A fixed-income strategy for squeezing the most yield out of your bond portfolio.
A version of this article was published in the November 2015 issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor here.
Flaw of Averages
Duration, by itself, is a crude measure of interest-rate sensitivity. It assumes a linear and instantaneous shift in interest rates across the entire yield curve. A more accurate assessment can be made when convexity is considered alongside duration, but that is outside the scope of this article. It is worth noting, however, that duration calculations are even cruder when it comes to a portfolio of bonds.