Low US bond yields and fears of a market bubble have called into question the role, if any, that a long-duration credit exposure should play in investors’ portfolios in the coming years. This concern is justified: the 10 year yield to maturity of global investment grade bonds implies returns of 2.40% in the next decade – a period in which interest rates in developed markets will likely increase from the extremely low levels set during the financial crisis.
Such low prospective returns undermine the ability of long-duration instruments to withstand future market shocks. As a consequence, we operate a very low duration exposure in Hermes Multi Strategy Credit Fund and instead allocate to defensive credit trades to preserve capital.
 Bank of America Merrill Lynch. Data as at 23/09/2016 for corporate bonds excluding financials