Bond market volatility and your money

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The equity markets aren’t alone when it comes to volatility. The bond market has also seen its fair share due to concern over a potential increase in interest rates. We wanted to offer our readers and clients some insight into how we view the bond market now and how we positioned portfolios to withstand the unpredictability. Below is a Q&A with vice president and senior fixed income portfolio manager Jay Sommariva.

Q. How is the potential for an interest rate increase impacting bond investments?

A. We have been expecting a rate hike for some time now, so we have been proactively positioning for an increase. Generally speaking, our corporate purchases have been in the five year and under horizon in order to gain some yield, but we are positioning our clients to be able to reinvest those securities at more favorable yields as rates rise.

Q. Does interest rate volatility affect long-term buy and hold bond investors?

A. The short answer is no. We have been buying high-quality securities that we expect to pay off at par at maturity. We are not buying bonds that we expect to trade along the interest rate cycles. The preservation of capital is first and foremost in our fixed income portfolios, while clipping the coupon to achieve a respectable yield along the way.

Q. How are Fort Pitt Capital Group’s fixed income investments positioned to insulate against this volatility?

A. Although we can never be 100% insulated against an abrupt rise in rates, by staying relatively short in duration, we can alleviate some of the price depreciation that occurs further out the curve. Also, by laddering the maturities, we don’t put all the eggs into one basket in case rates don’t rise or rise sooner than expected.