Economic Activity
Government Debt

Bond investors need to hold out longer for meaningful returns

The Sherman Ratio maps out a warning for corporate debt holders.

Michael Brisley
January 27, 2021

Corporate bond investors holding out for notable returns on their investments will need to exercise a lot more patience and stamina.

Our chart mapping out the so-called Sherman Ratio, which calculates yield per unit of duration, tells us that investors need to take on debt of even longer maturity just to gain a relative unit of yield. They’ll also need to keep a close eye on central banks, for even a slight drop in interest rates could erase their earnings – particularly for investment-grade bond holders.

With central banks set to hold borrowing rates at record lows – or even cut them further – to support a post COVID-19 recovery, is it any wonder that money continues to pour into stocks?

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