Entering text into the input field will update the search result below

Pimco's April 2012 Viewpoint Duration Ditty Makes A Debatable Point.

Apr. 26, 2012 10:02 AM ET2 Comments
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You