Wipe out Investor’s yield

The duration of the Barclays Global Corporate Investment Grade Bond index has increased from 5.9 end of 2013 to 6.9 end of 2019. During the same time period, the yield-to-worst fell from 2.9% to 2.2% and the Sherman ratio decreased from 0.5 to 0.3.

A Sherman ratio of 0.3 implies that interest rates have to increase by only 0.3% over the next 12-months to wipe out an investor’s entire yield. In other words, the lower the ratio, the less interest rates need to rise to offset an investor’s yield.

Formula: Sherman ratio = yield / duration.

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