Inside the Yield Book: The Classic That Created the Science of Bond Analysis, 3rd Edition

Chapter 4

Barclays Index and Convergence to Yield

Introduction

In earlier chapters, we showed that yield accruals and price changes have offsetting effects that accumulate over time and pull the returns of duration-targeted (DT) portfolios back toward the starting yield. This “gravitational pull” drives the annualized DT portfolio return volatility to a minimum value for a holding period that is one year less than twice the targeted duration.

In this chapter, we move beyond theory and simulated returns to the recorded returns of an actual DT portfolio—the Barclays U.S. Aggregate Government/Credit index over the 1974 to 2011 period. Despite the diversity of securities and the wide range of yield fluctuations, the Barclays duration has remained ...