Interest Rate Risk Management in Fixed Income Portfolios

Easy Managing Fi Portfolios Interest Rate Risk

John is managing a fixed income portfolio for a pension fund, which is particularly concerned about interest rate risk. Given the current market conditions, interest rates are expected to rise due to economic recovery and inflation concerns. John contemplates various strategies to mitigate the impact of increasing interest rates on the portfolio's value.

Which of the following strategies would most effectively reduce the portfolio's sensitivity to interest rate movements?

Increase the duration of the portfolio by purchasing long-term bonds.

Implement a barbell strategy by investing in both short-term and long-term bonds.

Sell existing bonds and move entirely into cash.

Hint

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