Managing Market Risk in a Fixed-Income Portfolio

As a portfolio manager for a large institutional investor, you are charged with assessing and managing the market risk within the fixed-income segment of the portfolio. The portfolio currently consists of a mix of government bonds, corporate bonds, and asset-backed securities. The client has expressed concerns regarding potential interest rate hikes and their impact on the portfolio's value.

Additionally, there are increasing concerns about credit risk associated with corporate bonds as economic indicators suggest a potential slowdown. Your task is to develop a comprehensive strategy for managing market risk within this fixed-income portfolio, taking into account the potential impacts of interest rate movements and credit quality deterioration.

In your response, outline the key risk factors that need to be considered, the tools and techniques you would employ to manage these risks, and any potential trade-offs that might arise from your strategy decisions.