Two Ways To Measure Tangible Risk To Your Fixed Income Portfolio

In the case of a portfolio with an 8 year duration, a yield of 3.5%, then the risk is 4.5% if rates on Treasuries increase by 1%.
Method 2
Using the second method, that same portfolio of corporate bonds would expect to see a risk of 8%, a fairly wide gap between the two methods, indeed.
It therefore becomes increasingly important for bond investors to understand how they have invested their money. This is important not only from a risk assessment perspective, but also from a portfolio construction perspective. While investigating how you have invested your money is ultimately up to you, utilizing one or both of these methods can help you get a feel for what the risks of that portfolio may be.

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