• The 10-year U.S. Treasury note has risen approximately 25 bps month to date and briefly crossed the psychologically important 3% mark on Wednesday.1
  • While Treasury yields remain low from a historical perspective, their steep climb in recent weeks shines a light on the risk that rising interest rates may have on traditional fixed income investments.
  • For example, the Bloomberg Barclays U.S. Aggregate Bond Index, the widely quoted benchmark for investment grade bonds, generated a year-to-date return of approximately -2.5%, underperforming many other major fixed income categories.2
  • As shown in the chart, the duration of traditional fixed income investments has steadily climbed over the past decade, from a low of just 3.7 years in January 2009 to approximately 6.1 as of March 31.3
  • Duration, expressed in years, measures the sensitivity of a bond’s price to changes in interest rates. The higher a bond’s duration, the more its price may decline as interest rates rise.
  • The low yield environment may limit the upside return potential in many fixed income sectors, while the downside risks for higher-duration investments could be substantial as interest rates rise.
  • Following many years in which interest rate sensitivity may have helped an investor’s portfolio, investors may be well served by reviewing their portfolio’s exposure to interest rate risk once again.

1 Federal Reserve Bank of St. Louis, 10-year U.S. Treasury note, https://bit.ly/29ecBfp.
2 Performance data through April 26, 2018.
3 Bloomberg Barclays U.S. Aggregate Bond Index, as of March 31, 2018.


The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.