A strong case for ultra-short bonds A strong case for ultra-short bonds http://www.federatedinvestors.com/static/images/fed-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\video\video-small-bauer.jpg

A strong case for ultra-short bonds

Senior Portfolio Manager Randy Bauer outlines how the limited interest rate risk and low volatility of ultra-short bonds can support investors, especially during periods of rising interest rates.
Published
Randall Bauer, CFA
Randall Bauer, CFA
Senior Vice President
Senior Portfolio Manager
Head of Low Duration Strategies
Head of Structured Products Group
VIDEO TRANSCRIPT
00:10
How can investors navigate a rising-rate environment?
00:14
Well you probably want to add to your short duration holdings and an ultrashort bond fund would fit right into that category. As opposed to keeping more assets in a longer duration fund with more interest rate sensitivity. Just as you can benefit when rates go down, you can also have problems if rates go up too quickly or too much, and that's where ultrashorts come in. They cut the risk associated with rising interest rates in the overall bond portfolio.
00:46
Is that what makes ultrashorts particularly attractive today?
00:50
Ultrashort bond funds have a place in pretty much every portfolio, but when interest rates are rising they become particularly valuable, and the reason for that is because they have low interest rate sensitivity. The duration, and that's a measurement of interest rate sensitivity, is less than one year in an ultrashort bond fund, so you don't have a lot of movement as interest rates move. That's valuable in this environment when rates are rising the Federal Reserve is raising their short-term interest rate targets.
01:23
How will the end of quantitative easing affect ultrashorts?
01:28
Quantitative easing will probably, all else equal, cause interest rates to rise. Federal Reserve engaged in a long period of quantitative easing and it's going to take them a long time to eliminate the effects of quantitative easing, but over that course you're probably going to see interest rates, all else equal, rise over the next couple of years. Again, ultrashort bond funds can be a place to maybe hide a little bit from that effect of rising interest rates.
02:03
Views are as of March 15, 2018 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. Ultrashort products are not money market products and their shares will fluctuate in value. Federated Investment Management Company. 18-73719 (3/18)
TAGS Fixed Income Retirement Income Portfolio Stability
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DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.