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Short Duration Convertible Bonds: A Compelling Alternative to Traditional Fixed Income

Monday, November 21, 2022

The U.S. Federal Reserve’s fight against inflation through increases in the Fed Funds rate and quantitative tightening has led to the worst year on record for the U.S. fixed income markets (as measured by Bloomberg U.S. Aggregate Bond Index performance of -15.7% year-to-date through October 31, 2022). This environment, when combined with the potential for additional rate hikes, has resulted in significant losses to fixed income portfolios.

When considering allocations to fixed income, convertible securities should not be overlooked. We believe an allocation to Palisade’s Short Duration Convertible Bond strategy can provide investors with an attractive risk-reward profile, particularly in a “higher rates for longer” environment. Our strategy has performed well in periods of rising interest rates and outperformed during fixed income market drawdowns, all while maintaining additional return potential from the hybrid nature of the asset class.

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