The specter of rising interest rates can give managers of fixed-income portfolios nightmares. The soothing balm in this case is not a glass of warm milk but a lower duration target. You might be targeting a Treasury benchmark that has a 5.5-year duration. Facing the prospect of rising yields, you might prefer a 4.5-year duration. Once you have achieved the shorter duration, rising yields will pose less of a threat to your sleep. Your portfolio will suffer a loss but not as large a loss. You can still outperform your benchmark.

For the full report view the PDF below.

 - Simple Treasury Duration Adjustment - 09.25.2006