How the Hedge Against Interest Rate Risk for Bonds Research Paper

Open, View, and/or
Download this Document

Total Length: 268 words ( 1 double-spaced pages)

Total Sources: 1

In a rising interest rate environment, how would bond values change over time? As a bond investor, what measures would you take to manage rate risk?In a rising interest rate environment, bond prices would go down. The reason is that investors can now achieve a higher yield than what was previously accessible. This will result in current yields for bonds selling at par to be inadequate relative to higher yield bonds. To compensate for this, the bonds will fall in price so that the yields match those that are prevailing in the market. The opposite will occur when interest rates fall. In fact, this is exactly what has occurred in the market as investors have benefited from a near 2-decade bond bull market where interest rates have fallen and bond investors have profited.

Stuck Writing Your "How the Hedge Against Interest Rate Risk for Bonds" Research Paper?

View All Our Example How the Hedge Against Interest Rate Risk for Bonds Research Paper

Have A Custom Example Essay Written

To manage risk, bond investors should have a portfolio that has a shorter duration. That way, they can reduce the risk associated with long term bonds declining. A short duration bond portfolio allows the investor to take his principle and use it to purchase bonds that are higher yielding in the event that interest do rise as he or she projects. Derivatives also can help with this as well. Interest Rate Swaps for example can help an investor lock in an interest or hedge against a decline in his or her bond holdings. This will also help to mitigated the risk of sudden and unforeseen changes in interest rates......

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"How The Hedge Against Interest Rate Risk For Bonds" (2021, August 08) Retrieved May 19, 2024, from
https://www.aceyourpaper.com/essays/hedge-interest-rate-risk-bonds-2176540

Latest MLA Format (8th edition)

Copy Reference
"How The Hedge Against Interest Rate Risk For Bonds" 08 August 2021. Web.19 May. 2024. <
https://www.aceyourpaper.com/essays/hedge-interest-rate-risk-bonds-2176540>

Latest Chicago Format (16th edition)

Copy Reference
"How The Hedge Against Interest Rate Risk For Bonds", 08 August 2021, Accessed.19 May. 2024,
https://www.aceyourpaper.com/essays/hedge-interest-rate-risk-bonds-2176540
   

Open, View, and/or
Download this Document
order custom essay example