Fixed Income, (Eventually) Rising Rates and the (Non) Universal Law of “Bond Gravity”

July 25, 2014 | Kweku Obed, CFA, CAIA, Managing Partner

While we cannot predict exactly when and by how much rates will rise, the Federal Reserve (“Fed”) has recently signaled that we could see a modest increase in the fed funds rate by mid-2015. Given the increased possibility of rates rising over the next few years, investors should not retreat in fear from bonds en masse or look to underweight their fixed income allocations to anemic levels. Instead, they should continue to view fixed income as strategically important: after all, fixed income is a broad asset class with a diverse opportunity set. And, while we will summarize our views on some different sub-asset classes in this paper (including floating rate bonds, non-U.S. debt and convertibles), for additional reading on non-core fixed income sub-asset classes, please refer to our previously released papers on global fixed income, emerging markets debt, high yield and senior secured loans.

In respecting the broadness of our client-base, we seek to avoid a one-size fits all narrative on how they could look to manage their bond allocations: some clients will be limited in their ability to access certain sub-asset classes while others will have ample room and resources to maneuver across the choice spectrum. Consequently, there are  a number of prudent approaches and strategies for these different types of investors to explore as a means of hedging their interest rate risk. The key is establishing which portfolio framework or sub-asset class exposure is the best fit for their programs and in line with their circumstances, risk tolerances, and investment goals.

Download PDF >

Kweku Obed, CFA, CAIA
Managing Partner

Get to Know Kweku

Related Content

01.18.2019

2019 Market Preview

Coming off a difficult 2018, investors face a litany of questions going into this year, whose potential answers will undoubtedly…

U.S. Credit Market Health Check

01.09.2019

U.S. Credit Market Health Check

This week’s chart looks at two key indicators of the health of the U.S. credit market. The first, on the…

01.04.2019

Nowhere to Hide in 2018

As we enter 2019, we look back on what was a pretty poor year for investors. There was just nowhere…

12.28.2018

2019 Market Preview Briefing

Live Webinar – Thursday, January 17, 2019 – 1:00-2:00 PM CT

12.21.2018

Keeping the Current Market Correction in Perspective

Over the last few months, equity markets have experienced sizable drops, making many investors wary about the future. Despite this,…

12.21.2018

Fourth Rate Hike of 2018; More to Come?

On Wednesday, December 19, the Federal Reserve executed its fourth rate hike of 2018. This 25-basis point hike, the ninth…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >