In a rising interest rate environment how would bond values

In a rising interest rate environment, how would bond values change over time? As a bond investor, what measures would you take to manage rate risk?

Solution

In environment of rising interest rates, bond prices falls as they are inversely proportional.

So for an investor who believes that interest rates will rise in future, he should hedge the risk as his bond portfolio value will fall.

He can hedge the risk by entering into swap agreement, in which he bets that interest rates will rise and thus gain in swaps hedge loss in bond portfolio.