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Wall Street Journal

Forget About Bond Ratings. This Is the Biggest Fixed-Income Risk.

Many investors think the riskiness of their bond portfolio is in the default risk or the country of origin of their holdings. But, in fact, the main source of risk in your bond portfolio is the length of time to maturity of the bonds or bond funds. To study this issue, my research assistants (Huzaifah Shafique and Arnav Pradhan) and I pulled all U.S. dollar-denominated fixed-income mutual-fund data going back 40 years. We then took the average monthly returns across the following fixed-income groupings: short-term Treasury funds (average maturity of six months), long-term Treasury funds (average maturity of 20 years), intermediate Treasury funds (average maturity of six years), world debt funds (average maturity of six years), high-yield corporate debt (average maturity of five years) and investment-grade corporate debt (average maturity of 10 years).