Bond Management Strategies Bond Management Strategies Bond management strategies are based on interest rate anticipation, sector rotation and security selection.
Interest rates are the most important factor in the pricing of bonds.
The market interest rate for any particular term of bond is generally agreed to be represented by the yields on government bonds, as these are viewed as highly liquid and of very low default risk. A yield curve strategy would position a bond portfolio to profit the most from an expected change in the yield curve, based on an economic or market forecast. Sector Rotation in Bonds A sector rotation strategy for bonds involves varying the weights of different types of bonds held within a portfolio. An investment manager will form an opinion on the valuation of a specific sector of the bond market, based on the credit fundamental factors for that sector and relative valuations compared to historical norms and technical factors, such as supply and demand, within that sector. A manager will usually compare her portfolio to the weightings of the benchmark index that she is being compared to on a performance basis.