﻿ Weighted average maturity: What is it, Working, Calculation, FAQ | POEMS

# Weighted average maturity

## Weighted average maturity

For pools of mortgage-backed securities, the weighted average maturity is often a more widely used indicator of maturity. It computes an average maturity period for each security in a debt portfolio, weighted in accordance with the portfolio’s dollar investment. The sensitivity to changes in interest rates is greater in portfolios with a higher weighted average maturity.

By understanding the weighted average maturity of their portfolio, investors can make informed decisions about when to buy and sell bonds. This can help them to avoid losses in the event of a market downturn.

## What is weighted average maturity?

A weighted average maturity is the average of the maturities of a group of securities, with each security’s weight in the averaging process being proportional to its market value.

The higher the average maturity, the longer it takes for each portfolio item to mature. The weighted average maturity is utilized to manage debt portfolios and evaluate the effectiveness of debt portfolio managers.

## Understanding weighted average maturity

When it comes to investments, the weighted average maturity is an important metric to understand. Simply put, the weighted average maturity or WAM measures the average length of time until the maturity of the bonds in a portfolio. The weighting part of the equation refers to the fact that bonds with longer maturities are given more weight, or importance, in the calculation.

Why is the WAM important? Well, it can give investors a good idea of the riskiness of a portfolio. For example, a portfolio with a WAM of 10 years will be more sensitive to interest rate changes than a portfolio with a WAM of 5 years. That’s because bonds with longer maturities are more susceptible to interest rate changes than bonds with shorter maturities.

Investors can use the WAM to decide how to allocate their assets. For example, an investor looking for a more conservative portfolio might choose to invest in bonds with shorter maturities. In comparison, an investor looking for a more aggressive portfolio might decide to invest in bonds with longer maturities.

Of course, the WAM is just one metric investors should consider when making investment decisions. But it is a helpful tool for understanding the riskiness of a portfolio and for making asset allocation decisions.

## How does weighted average maturity work?

The WAM is used to give investors an idea of the riskiness of a bond portfolio. A higher WAM means that the portfolio is riskier.

## How is weighted average maturity calculated?

First, determine the weight of each security in the portfolio to calculate the average weighted maturity. The weight is determined by the security’s market value divided by the portfolio’s total market value.

Once the weights are determined, calculate the maturity of each security. The maturity is the number of years until the security matures. To get the weighted maturity, multiply the weight of the security by the maturity.

Finally, add the weighted maturity of all the securities in the portfolio to get the average weighted maturity.

For example, let’s say you wish to calculate the WAM of three bonds,

Bond X is \$2,000, which matures in 10 years.

Bond Y is \$4,000, which matures in 8 years.

Bond Z is \$8,000, which matures in 4 years.

 Bond Amount Weight Maturity Weighted Maturity Bond X \$2,000 14.3% 10 1.43 Bond Y \$4,000 28.6% 8 2.29 Bond Z \$8,000 57.1% 4 2.28 \$14,000 100% 6

Therefore, the weighted average maturity period for the bond portfolio is 6 years.

## What does weighted average maturity signify?

Weighted average maturity is a measure of a bond fund’s sensitivity to changes in interest rates. It is calculated by weighting the maturity of each bond in the fund by its percentage of the fund’s total assets. A result is a single number representing the average maturity of the bonds in the fund.

A bond fund with a higher weighted average maturity will be more sensitive to changes in interest rates than a fund with a lower weighted average maturity. For example, if interest rates rise, the value of a bond fund with a higher weighted average maturity will fall more than that of a fund with a lower weighted average maturity.

Weighted average maturity can be a helpful tool for investors trying to manage their exposure to interest rate risk. For example, an investor concerned about the potential for rising interest rates may choose to invest in a bond fund with a lower weighted average maturity.

Weighted average maturity bonds are bonds whose coupon payments are weighted according to the time remaining until maturity. The weights are usually based on the number of days remaining until maturity. The advantage of weighted average maturity bonds is that they provide a measure of protection against interest rate changes.

A good weighted average maturity is weighted according to the importance of the different maturities. For example, if short-term maturities are more critical, they should be given greater weight. The weighted average maturity can be used to measure the risk of a portfolio’s risk and the average return.

A weighted average maturity calculator is a tool that can be used to calculate the weighted average maturity of a portfolio of bonds. The calculator takes into account the different maturities of the bonds in the portfolio, as well as the different weights that are assigned to each bond. This information is then used to calculate the portfolio’s weighted average maturity.

The weighted average maturity of assets is a measure of the average maturity of all the assets in a portfolio, weighted according to their respective market values.

This metric helps assess the riskiness of a portfolio, as assets with longer maturities are typically more sensitive to interest rate changes than those with shorter maturities.

The weighted average term of maturity of a debt security is the average length of time until the debt instrument matures, weighted by the outstanding principal amount of each security. This calculation is used to give investors an idea of the average maturity of the debt in the portfolio.

## Category

### Read the Latest Market Journal

#### Back in Business: The Return of IPOs & Top Traded Counters in March 2024

Published on Apr 17, 2024 406

#### Weekly Updates 15/4/24 – 19/4/24

Published on Apr 15, 2024 68

This weekly update is designed to help you stay informed and relate economic and company...

#### From \$50 to \$100: Unveiling the Impact of Inflation

Published on Apr 12, 2024 150

In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

#### Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

Published on Apr 11, 2024 84

Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

#### Weekly Updates 8/4/24 – 12/4/24

Published on Apr 8, 2024 109

This weekly update is designed to help you stay informed and relate economic and...

#### What Makes Forex Trading Attractive?

Published on Apr 2, 2024 191

In a world where the click of a button can send goods across oceans and...

#### Weekly Updates 1/4/24 – 5/4/24

Published on Apr 1, 2024 98

This weekly update is designed to help you stay informed and relate economic and company...

#### How to soar higher with Positive Carry!

Published on Mar 28, 2024 137

As US Fed interest rates are predicted to rise 6 times this year, it’s best...

POEMS 3 App

• Call Back

• Chat with us

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com