Managing Interest Rate Risk in Fixed Income Portfolios

As a fixed income portfolio manager at an investment firm, you have been tasked with evaluating a bond portfolio that is currently valued at $10 million. The portfolio consists of a mix of corporate bonds with varying maturities and credit qualities. You have observed that interest rates are expected to rise significantly over the next year due to tightening monetary policy by the Federal Reserve.

Before making any decisions, you need to analyze the portfolio's exposure to interest rate risk. Outline the key metrics you would assess to understand this risk and explain how you would manage the portfolio to mitigate potential adverse effects from rising interest rates. Be specific about the strategies and tools you might employ, and justify your choices based on your analysis.