Mitigating Interest Rate Risk in Bond Portfolios

As a portfolio manager at a fixed income investment firm, you are responsible for managing a diversified bond portfolio worth $100 million. The current average duration of the portfolio is 6 years, and you are concerned about potential interest rate increases. Based on historical analysis, a 100 basis point increase in interest rates would likely reduce the portfolio’s value by approximately 6%. In an effort to mitigate the impact of rising rates, you are considering several strategies.

Which of the following strategies would most effectively reduce the interest rate risk in your portfolio?