Line graph compares the yield of the 10-year U.S. Treasury Note with the Bloomberg U.S. Aggregate Bond Index duration.
Left Y-axis: Yield (%), right Y-axis: Duration (in years); X-axis: 1989-2022
During this period the 10-year U.S. Treasury yield had declined from nearly 9% in January 1989 to about 3.8% at the end of September 2022. At the same time, duration has increased from just over 4.5 years in January 1989 to about 6.2 years at the end of Q3 2022.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1989 to September 30, 2022. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. Duration is a measure of interest rate sensitivity.
- The overall low-rate environment of the prior decade not only encouraged companies to issue longer-dated maturities, but also naturally increased the duration (interest rate sensitivity) of new-issue securities.
- A higher duration makes bond prices more sensitive to changes in interest rates. Hence, rising long-term rates pose a more significant impact to fixed-income investors.