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OTHERS are shuffling their portfolios to improve quality, shorten maturities, add corporate debt or seek protection with short sales, or even the credit default swaps that have attracted so much official and public opprobrium.
To shorten maturities when borrowings are ballooning is long-term lunacy.
One way to reduce risk in a bond portfolio is to shorten maturities.
Not surprisingly, bankers are using their new popularity to jack up their spreads, shorten maturities and restructure terms.
But in three and a half years, half the bond's "duration" disappears because of the shortened maturity.
Shortening maturities in this environment is always a good idea.
"The appropriate way for people to hedge bonds is to shorten their maturity".
Well, it does shorten the maturity, and that's usually a good thing.
However, this operation is equivalent to the Treasury shortening the maturity of its outstanding debt.
The conventional advice is to shorten average maturities and move more of your money into inflation-protected securities.
Igor Arsenin of CSFB, an investment bank, says that a "couple of tricks," such as slightly shortening the maturity on new bonds to be offered in exchange for defaulted debt, could raise the value of Argentina's offer to around 30 cents on the dollar.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com