With interest rates finally starting to rise, bond investors are starting to feel the pain. Investors in broad bond market products like the iShares Core US Aggregate Bond ETF (AGG - ETF report) , the Vanguard Intermediate-Term Bond ETF (BIV - ETF report) , and the iShares 7-10 Year Treasury Bond ETF (IEF - ETF report) are all seeing red over the past month, with the prospect of more losses on the horizon if the Fed raises rates this year.
What is an investor to do in this environment?
Fortunately, for this edition of the Dutram Report, I managed to speak with Bryce Doty of Minneapolis-based SIT Funds for some insights. Bryce is a senior portfolio manager at the firm, overseeing roughly $7 billion in fixed income investments, so he definitely knows a thing or two about the bond world.
In our discussion, Bryce talks about his outlook for the Fed, possible changes to interest rates in the near term, and his expectations for how this will impact bond investors. Bryce also talks about the likelihood of a bond bull market being over and what that might mean to us to close out 2016.
Additionally, Bryce talks about his company’s Sit Rising Rate ETF (RISE - ETF report) and how this product can be used to hedge investors’ risks in the bond world, as well as the strategies that the product uses to accomplish this task. Much of this discussion centers on the product’s target of a negative 10-year duration bond portfolio, and how this can be used to balance out what is likely to be a poor return for unhedged fixed income investors should the Fed follow through and hike rates to close out 2016.
You should also feel free to check out their site for a great interest rate defense calculator which can show you what the impact of higher rates will be on your fixed income instruments, as well as the current duration of your bond portfolio. And for more insights from Bryce and a broader discussion of the bond world, make sure to listen to this edition of the Dutram Report!
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