Time to Extend Duration with High-Quality Fixed Income

By Peter W. Palfrey, CFA®

Advantages of High-Quality Fixed Income Duration Are Back

High-quality fixed income duration is an important portfolio hedge today explains a Loomis Sayles Core Plus Bond Co-Manager.

After numerous Federal Reserve interest rate hikes and a dramatic repricing of the entire bond market, longer duration bonds are becoming an important component of portfolios once again. To gain insight into the advantages of adding high-quality duration to fixed income portfolios in today’s shifting environment, Investment Strategist Erica Casale sat down with Peter Palfrey, Co-Manager, Loomis Sayles Core Plus Bond strategy.

Here are highlights from the late July 2023 interview on why it may be time to extend duration:
  • In 2022, duration equaled pain. Duration in 2023 takes on a very different form. In fact, high-quality duration has become one of the most important hedges that you can have in a portfolio.
  • The global economy may be slowing. This slower pace sets you up to actually want high-quality duration in your portfolio today.
  • For us at Loomis Sayles, it's all about being up in quality, up in price transparency, and up in liquidity as we get closer and closer to some kind of economic contraction.
  • For investors who remain in ultra-short duration fixed income because of their 2022 experience, they may be overlooking reinvestment risk – especially if the Fed is close to the end of its rate hike cycle and we get an economic downturn sometime in 2024.
This material is provided for informational purposes only and should not be construed as investment advice. The analysis and opinion expressed represent the subjective views of Peter Palfrey as of July 19, 2023 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity.

Interest rate risk is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors.

Duration risk measures a bond's price sensitivity to interest rate changes. Bond funds and individual bonds with a longer duration (a measure of the expected life of a security) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations.

Natixis Distribution, LLC (fund distributor, member FINRA | SIPC) and Loomis, Sayles & Company, L.P. are affiliated.​

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