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January 26, 2021

Bond investors need to hold out longer for meaningful returns

The Sherman Ratio maps out a warning for corporate debt holders.
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In-house blogger
Guest blogger
Michael Brisley
Head of UK Buy Side sales and EMEA New Business
All opinions expressed in this content are those of the contributor(s) and do not reflect the views of Macrobond Financial AB.
All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.

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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