Portfolio ~ Yields vs Valuations

Which is most important?

For those who are not directly involved in managing a portfolio of bonds, there are many perplexing issues related to understanding the dynamics of a Fixed Income Portfolio compared to other investment vehicles. Perhaps the most vexing are the issues related to Valuation. With other types of investments, Valuation is the key to performance. However, this is not true in terms of the performance of a Fixed Income Portfolio. Yield is the key performance measure of a Bond Portfolio, with Valuation taking a very secondary position, which really represents a measure of opportunity cost. 

​In this report, we will attempt to separate performance, as measured by Yield, and Valuation, which is very real but truly represents a perspective on the Portfolio rather than a performance measure. Those who are unable to distinguish this difference are often doomed to poor performance, as the simple fact is that Valuations always improve as Rates fall and deteriorate as Rates rise, but neither has a direct impact upon Yield or performance...

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