Corporate bonds – bonds related to ’short duration’

November 2017

For many years, investment in corporate bonds has been one of the ways to achieve a higher return and diversification of portfolios. However, global issue activity from states and companies has never been higher; in addition, interest rates are still low and it is uncertain when this is going to change. In any event, many people see the risk of rising interest rates as more and more onerous.

At the same time as interest rates have declined, while the perceived risk of growing interest rates has increased, the last few years have seen inves­tors seeking investments where the risk in case of interest rate increases is more limited. One of the investment sanctuaries used has been investment in corporate bonds with limited duration (short duration bonds).

Below, we address some of the deliberations we rec­ommend before an investor makes a corporate bond investment on the merit of short duration only. A number of recognised studies assess the possi­bility of a low-risk anomaly in the credit market. An anomaly which delivers a higher Sharpe ratio, typically through higher rating or short duration. Jyske Capital will be pleased to assist investors by providing academic material covering this subject .