The cost of waiting for interest rates to rise
The unforeseen pitfalls of “staying short” with your client’s fixed income allocation
Mike Flaherty
Great article. Can you walk me through the math/assumptions in your example? Thank you in advance for your assistance.
Stephen J. Huxley
The analysis was based on the yield curve going back to 1927. We computed how much rates would have to rise to make the cost of the 1-8 year portfolio drop from $787,000 to the cost of the 3-10 year prortfolio, $733,000, assuming the slope of the yield curve remains the same. We then looked to see how often rated had risen that far that fast. The answer was about 11% of the time.
Jeroen
Hi,
Thanks for this piece. I have been trying what to decide what to do about this issue myself. What about putting your bond portion of your portfolio allocation into TIPS for the time being?
Would love to hear your opinion.
Regards,
Jeroen
