Bond navigators: how far can yields rise before duration hurts?

Higher starting government-bond yields now provide enough carry to cushion duration against further rises in yields, while a later fall in UK rates could generate gains.

• The analysis uses Bloomberg data and Royal London Asset Management’s on-desk calculations to estimate one-year total returns from the end of September 2026 under different yield scenarios.
• A bond’s return combines price return with coupon income, and the income component is now materially larger than during the post-financial-crisis period when yields were near zero.
• A further 50bps rise in yields still produces positive one-year returns across most major developed government-bond markets, while a 100bps rise causes only modest losses in many cases.
• The authors also calculate how much yields would need to rise before a 100bps increase produces no loss across the markets shown, finding that yields can move materially higher before reaching that break-even level.
• They expect UK rates eventually to fall as inflation moderates and restrictive policy weighs on growth, although the timing is uncertain and markets still price a relatively high path for policy rates.

Takeaway: The authors remain comfortable holding duration because current yields offer a meaningful cushion against further sell-offs, with potential upside if UK rates ultimately fall below market expectations.