Interest Rate Risk Management in Fixed Income Portfolios

As a fixed income portfolio manager, you have been tasked with assessing the impact of interest rate fluctuations on a portfolio consisting of government bonds, corporate bonds, and municipal bonds. The current interest rate environment indicates a potential rise in interest rates due to anticipated monetary policy tightening by the central bank.

Discuss the potential effects of rising interest rates on the different types of bonds in the portfolio, and outline the strategies you would employ to manage interest rate risk effectively. Consider duration, convexity, and potential hedging techniques as part of your assessment.