Mastering Attribution in Finance

14

Duration allocation attribution

14.1 Introduction

14.2 Return of a single fixed income security

14.3 Calculating duration returns

14.4 Discussion

14.1 INTRODUCTION

A manager who makes macro-level investment decisions on their portfolio’s interest rate risk exposures against benchmark is following a duration allocation strategy. Duration allocation strategies are often run in parallel with security-level strategies involving exposure to active carry, movements in the risk-free curve and credit spread changes.

Duration allocation techniques are becoming increasingly widely used in fixed income investment, and are frequently combined with other bottom-up techniques to form hybrid investment strategies, with a return that must be measured ...