Rising Duration a Broad-based Risk

| Multi Asset

Since QE, the sensitivity of financial markets to the economy has reached record levels. Never before has government debt been so high. The duration of bond indices has risen from 5.5 to 8.6 since 2000, sharply deteriorating the risk/reward of government bonds.

Equities are also affected by this phenomenon. The rise in equity indices observed over the last 10 years, particularly in the US, has been concentrated on a few sectors with an implicit duration higher than the average due to their growth profile and the implications of a dividend discount factor model.

As a result, any upward movement in nominal long-term interest rates will have a greater impact than before. We see this increase as a key determinant of a sustainable rotation across assets, factors and sectors, believing that the faster the rise, the more disordered and stressful this rotation will be.


Rising Duration a Broad-based Risk
Source: Bloomberg, Unigestion. Data as at 5 March 2021.

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