8. The yield-to-maturity of a single cash-flow is unambiguous, whereas the yield of a portfolio of multiple cash-flows is a more controversial measure. The duration-times-market-value weighted yield is a good proxy for a portfolio’s true yield-to-maturity (internal rate of return). Capital gains are well-approximated by the product of minus duration and the change in such a yield measure. However, a portfolio’s market-value weighted yield may be a better estimate of the portfolio’s likely yield income over a short horizon (its near-term expected return) than is its yield-to-maturity. The yield-to-maturity weighs longer cash-flows more heavily and is more influenced by the built-in reinvestment-rate assumptions.

9. See Antti Ilmanen, “Convexity Bias in the Yield Curve,” Chapter 3 in Narasimgan Jegadeesh and Bruce Tuckman (eds.), Advanced Fixed-Income Valuation Tools (New York: Wiley, 2000).

10. See Antti Ilmanen, “Market’s Rate Expectations and Forward Rates,” Journal of Fixed Income (September 1996), pp. 8–22.

11. For example, one can use the predictors identified in Antti Ilmanen, “Forecasting U.S. Bond Returns,” Journal of Fixed Income (June 1997), pp. 22–37.

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