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How can fixed income investors manage the persistent challenge of interest rate risk when the established rules of engagement are changing? Asian Private Banker spoke to Amelie Chowna, Senior Fixed Income Investment Specialist, Asset Management, at L&G, to find out more about the evolving role of duration and the need for a more active and dynamic approach in today’s market.
Interest rate risk remains one of the biggest challenges facing fixed income investors today. What is the role of duration in fixed income portfolios?
Amelie: Duration is the dominant driver of long-term returns for most bond markets. For corporate bonds with a risk premium (credit spread), duration also plays a key role in shaping the risk-return profile.
Since the global financial crisis, duration has been seen as the primary hedging tool for credit risk. Our analysis shows that between 2008 and 2020, the correlation between credit spreads and government bond yields has often been negative1. For example, when credit spreads widen amid a risk-off environment, this would typically be accompanied by a decline in government bond yields, thus cushioning the negative effect from the credit spread widening.
But this correlation fundamentally changed in 2021.
How did the correlation change and how did it impact fixed income returns?
Amelie: The correlation started becoming more positive since the return of inflation in 2021. This new backdrop challenges the long-held view that duration is something to ‘buy and hold.’ In today’s world, fixed income investors need an active and dynamic approach to managing duration in portfolios.
To further illustrate, between 2011 and 2020, credit portfolios enjoyed strong returns thanks to declining bond yields, driven by an environment of low growth and inflation.
During this period, duration had provided a good hedge for credit exposure. Our research also showed that in periods of significant (10 basis points or more) widening in credit spreads, on average, US 10-Year Treasury yields decreased when looking at both weekly and monthly data.
The table below shows changes in the US 10-Year Treasury yield in periods of 10 bps of widening in US credit spreads or more:
| 2011 to 2020 | |
| Weekly series | -0.13 bps |
| Monthly series | -0.22 bps |
However, all of this changed when inflation picked up in 2021. Since then, global government bonds have recorded relatively poor returns and exhibited levels of volatility not too dissimilar to those of global high yield bonds.
The table below shows the performance and volatility of global fixed income sectors (2021-2024):
| Annualised Return | Annualised Volatility | Worst Return in a single calendar year | |
| Global Treasuries | -0.7% | 4.2% | -10.8% |
| Global Corporates | -1.0% | 5.8% | -14.1% |
| Emerging Market Debt | -0.5% | 5.4% | -15.3% |
| Global High Yield | 3.8% | 4.9% | -11.0% |
When we look again at periods of significant credit spread widening but consider data covering 2021 – 2025 to date, we can see that US Treasury yields still dropped in these moments on a weekly basis, but the opposite happened when looking at the monthly series, which suggests that any relief provided by duration has been short-lived.
The table below shows changes in the US 10-Year Treasury yield in periods of 10bps of widening in US credit spreads or more:
| 2021 to 2025 | |
| Weekly series | -0.13bps |
| Monthly series | 0.14bps |
What did these changing dynamics mean for unconstrained bond strategies?
Amelie: Duration can add to long-term returns, but now needs to be managed more dynamically. Over the last 40 years, duration has been something to ‘buy and hold.’ Still, we believe this is no longer appropriate for unconstrained bond strategies seeking improved risk-adjusted returns in volatile markets.
A more volatile, shorter-cycle backdrop will require a sharper focus not only on active duration management for the entire portfolio, but also on its interaction with risk assets.
For unconstrained bond portfolios with multi-credit exposure, we believe duration is only valuable when it provides potential diversification benefits, e.g., when the correlation between credit spreads and government bond yields is negative. When the correlation is more positive, for example, during periods of high inflation, we believe a lower duration exposure can be more beneficial.
How does L&G then manage duration exposure in its unconstrained bond portfolios?
Amelie: We believe the current market backdrop demands a more responsive and flexible approach to duration management in fixed income portfolios. Keeping a keen eye on market sentiment regarding recession versus inflation risks and actively adjusting our duration exposure in line with evolving macro-economic conditions has been a key driver of our team’s performance and how we aim to lower risk. Agile duration management is essential for unconstrained bond strategies now and in the future.
Learn more about L&G’s unconstrained bond strategies range here.
1 L&G, Bloomberg as at 30 September 2025
Key risk warnings
The value of investments and the income from them can go down as well as up and you may not get back the amount invested. Past performance is not a guide to future performance. The details contained here are for information purposes only and do not constitute investment advice or a recommendation or offer to buy or sell any security. The information above is provided on a general basis and does not take into account any individual investor’s circumstances. Any views expressed are those of L&G as at the date of publication. Not for distribution to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation.
Issued by:
Hong Kong: Legal & General Investment Management Asia Limited, a Licensed Corporation (CE Number: BBB488) regulated by the Hong Kong Securities and Futures Commission (“SFC”). This material has not been reviewed by the SFC.
Singapore: LGIM Singapore Pte. Ltd (Company Registration No. 202231876W), regulated by the Monetary Authority of Singapore (“MAS”). This material has not been reviewed by the MAS.
More about Amelie Chowna
Amelie is a Senior Fixed Income Investment Specialist in L&G’s Asset Management business, covering Global Unconstrained, Corporate, Aggregate, and Government Bond strategies. Before that role, she was a Portfolio Manager for the Global Bond Strategies team, joining in 2014. Amelie graduated from ESSEC Business School with an MBA and is a CFA Charterholder.
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