The risk in low rates

D. William Kohli, Co-Head of Fixed Income | August 9, 2012

Despite the uncertain macroeconomic environment, we continue to believe that a strategy that relies on rates declining further to drive returns is a risky proposition. At current levels, interest rates would not have to increase much in order for investors to start seeing price declines in Treasuries and certain other high-quality bonds that today offer little income to offset negative price movements. Although the uncertain macroeconomic environment has led us to reduce risk profiles in our portfolios, we have main­tained our bias in favor of credit risk and, to a lesser degree, prepayment risk over interest-rate exposure.

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