Podcasts & Videos

Risk of Rising Rates

October 2, 2014
Rates may be on the cusp of a directional shift. What can investors do to help safeguard their portfolio? Find out in our latest podcast.
Recorded September 22, 2014

Past performance is not indicative of future results. You cannot invest directly in an index.

Barclays U.S. Aggregate Index ("Barclays Agg," "Agg"): Represents the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, as well as mortgage and asset backed securities.

Duration: A measure of a bond’s sensitivity to changes in interest rates. The weighted average accounts for the various durations of the bonds purchased as well as the proportion of the total government bond portfolio that they make up.

Asset purchases: The Fed purchases longer-term securities issued by the U.S. government and longer-term securities issued or guaranteed by government-sponsored agencies such as Fannie Mae or Freddie Mac.

Basis point: 1/100th of 1 percent.

Quantitative Easing (QE): A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.

Tapering: A shift in monetary policy by which the Federal Reserve would begin decreasing the amount of bonds it purchases.

Mortgage-backed securities: Fixed income securities that are composed of multiple underlying mortgages.

Tightening: a decline in the amount of compensation bond holders require to lend to risky borrowers. When spreads tighten, the market is implying that borrowers pose less risk to lenders.

Liquidity: The degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

Volatility: A measure of the dispersion of actual returns around a particular average level.

Yield curve: Graphical Depiction of interest rates on government bonds, with the current yield on the vertical axis and the years to maturity on the horizontal axis.

Inflation: Characterized by rising price levels.

"ECB": European Central Bank

Hedge: Apply strategies meant to mitigate the impact of currency movements on equity returns.

Credit spread: The portion of a bond’s yield that compensates investors for taking credit risk.

Federal Funds Rate: the rate that banks that are members of the Federal Reserve system charge on overnight loans to one another. The Federal Open Market Committee sets this rate. Also referred to as the "policy rate" of the U.S. Federal Reserve.

Deflation: The opposite of inflation, characterized by falling price levels.

Escape velocity: the degree of economic health that the Federal Reserve believes is required for the economy to function independent of accommodative policy.
Bradley Krom
Director, Research
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Luciano Siracusano III
Chief Investment Strategist
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