Understanding Interest Rate Risk in Fixed Income Portfolio Management

Interest rate risk is a critical consideration in fixed income portfolio management. It refers to the potential for investment losses that can result from a change in interest rates. When interest rates rise, bond prices typically fall, affecting the overall value of a fixed income portfolio. This risk can be quantified using duration, which measures the sensitivity of a bond's price to interest rate changes.

For this essay, discuss the concept of interest rate risk in the context of fixed income portfolio management. Explain how duration can be used to manage this risk and provide examples of strategies that a portfolio manager might employ to mitigate the effects of rising interest rates.