First of all we need to define, what exactly duration is, and how it impacts bond pricing. Duration is expressed in years, and measures the sensitivity of bond’s interest rates. So, in short, if you have a bond portfolio with high duration, then you also have a bond portfolio with high interest rate sensitivity.
Keep in mind that if you position your bond portfolio to have low duration, you will have to give up yield in order to achieve that. If you position your bond portfolio to produce a higher yield, then there will be more risk associated with producing that yield.
Interest Rates and the Federal Reserve
If we look ahead the fed chairman, Janet Yellen, has said that we should expect interest rate hikes for 2016. It’s the beginning of November and we haven’t had an increase yet. If the fed wants to keep its word, then I don’t see how we don’t get at least one interest rate hike before year end, kind of like a repeat of 2015. The economy is slow, but steady, and job reports have looked very promising. I think everyone has their eye on the election, and once that is over you should be looking at your duration inside your bond portfolio.