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

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

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 Director

Get to Know Kweku

Related Content

08.16.2019

All is Not Lost for 2019

Given this week’s volatility driven by (brief) yield curve inversion, the ongoing U.S.-China trade dispute, disappointing economic data from Germany,…

08.14.2019

The Yield Curve Inverts: Time to Hunker Down?

This morning, the key range of the U.S. Treasury yield curve that is viewed as the bellwether of recessions —…

08.13.2019

Lower for Longer, or Negative Forever?

With Trump’s surprise announcement of additional tariffs at the beginning of this month — a day after the Fed’s rate…

08.02.2019

The Fed’s First Post-Recession Economic Stimulus

The Federal Reserve’s two central aims are to keep unemployment below a 5% threshold and inflation near a 2% constant….

08.01.2019

Stoking the Fire: The First Post-Recession Rate Cut

On July 31, 2019, the Federal Reserve cut interest rates for the first time since the 2008 Financial Crisis from…

07.25.2019

Second Quarter Review of Asset Allocation: Risks and Opportunities

Overall, the second quarter was positive for financial markets, thanks to strong economic fundamentals and expected Fed stimulus. Unemployment remains…

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 >