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  • Pimco's April 2012 Viewpoint Duration Ditty Makes A Debatable Point. 2 comments
    Apr 26, 2012 10:02 AM

    William G. De Leon & Ravi K. Mattu penned a duration ditty for Pimco's April 2012 Viewpoint Series:

    "Decoding Duration To Better Understand Your Portfolio"

    This standard MBA level coursework post on duration has one statement that lacks robustness.

    Ironically, under the heading of "Duration Isn't So Simple" the authors say that one of their four most important factors in assessing interest rate risk is ; "Bonds with default risk have a shorter duration than that implied by their stated maturity."

    This last statement ignores bankruptcies or restructurings that lead to longer duration lower coupon debt replacements and it ignores debt re-structured into equity whose duration is arguably much longer than any of the firm's debt. Of course, junk rated issuers, who are by default the most prevalent cohort for these re-structuring/bankruptcy event prone issues, one could argue their equity duration will be much shorter than that of equity in general.

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    I cant agree with you more.. the line does not just lack robustness, its plain inaccurate.. at best what can be said is if interest rates and credit spreads are negatively correlated hence corporate bonds may have less interest rate sensitivity then traditional duration...

    Gopi
    3 May 2012, 04:40 AM Reply Like
  •  
    Thank you Gopi ,
    I have found the posts of Bill Gross, Mark Kiesel and Scott Simon insightful from time to time but lots of Pimco posts are just elementary or marketing.
    El-Erian may be a bright guy but like Abbey J. Cohen of GS, he never seems to really say much of anything at all.
    7 May 2012, 02:40 PM Reply Like
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