Shelter from the Storm

Where to Go Amid Rising Yields

The current backdrop poses the question, what are the best defensive strategies for a fixed income investor to pursue in a reflationary environment? As Figure 1 shows, a meaningful bond sell-off during a phase of quantitative easing (QE) is not unusual, largely because QE is designed to reflate the economy. It is a sign that the Federal Reserve’s (Fed) medicine is working. There have been periods of aggressive yield rises in all three of the Fed’s phases of QE. On average these periods lasted 21 weeks and saw a rise in the 10Y Treasury yield of 140bp.1 While the …