Bond investors, unsure about Fed policy outlook, hedge against US rate shock
As U.S. interest rates continue to rise, bond investors are taking proactive measures to protect their portfolios. The surge in demand for swaptions, which yield profits from increased borrowing costs, highlights growing apprehensions regarding Federal Reserve policies and ongoing inflation. Investors are strategically hedging against possible spikes in 10-year swap rates, anticipating significant policy actions from the central bank that could catch many off guard.
Rather than locking into long-duration bonds at current yields, Puneet Pal, Head, Fixed Income at PGIM India Mutual Fund, believes investors should stay nimble and wait for potentially higher yield levels as the rate cycle evolves.
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