What Is Licorice Death?
Licorice death is a financial term used in bond markets to describe the gradual loss of value in low-yielding debt instruments. As interest rates rise or credit conditions tighten, the price of existing bonds falls, and the real return shrinks. The name suggests that the investment slowly "melts away," much like a licorice candy left in the sun.
How Licorice Death Affects Fixed Income Portfolios
For investors, licorice death is a reminder that holding bonds to maturity does not guarantee a positive real return if inflation or rates move higher. Duration risk and credit risk are the main drivers. Long-duration bonds and lower-rated issuers are most exposed, because their future cash flows are discounted more heavily when yields rise.
Licorice Death vs. Other Bond Risks
Unlike a sudden default or a sharp market crash, licorice death is a slow, steady erosion. It is different from liquidity risk, which involves the ability to sell quickly, and from event risk, such as a downgrade or restructuring. Licorice death is best understood as the quiet, compounding loss of purchasing power in a low-yield bond portfolio over time.
Investors can manage licorice death by diversifying maturities, favoring higher-quality credits, and matching portfolio duration to their time horizon. For more on bond risk and fixed income strategies, see the Investopedia guide to bond risk.
