Interest Rates and Your Core Bond Allocation

Senior Portfolio Specialist Douglas Gimple explains how rising interest rates impact clients’ core fixed income portfolios and how we can help mitigate this risk.
April 2017
duration: 5:35

The views expressed are those of Diamond Hill Capital Management as of April 2017 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice.

An investor should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus or summary prospectus contain this and other important information about the Fund(s) and are available at or by calling 888.226.5595. Please read the prospectus or summary prospectus carefully before investing. The Diamond Hill Funds are distributed by BHIL Distributors, LLC, member FINRA. Diamond Hill Capital Management, Inc., a registered investment adviser, serves as Investment Adviser to the Diamond Hill Funds and is paid a fee for its services. Diamond Hill Funds are not FDIC insured, may lose value, and have no bank guarantee.

Risk Disclosure: The value of fixed-income securities varies inversely with interest rates; as interest rates rise, the market value of fixed-income securities will decline. Lower quality debt (ie: “High Yield”) securities involve greater risk of default or price changes due to potential changes in the issuer’s credit quality. The value of investments in mortgage-related and asset-backed securities will be influenced by the factors affecting the housing market and the assets underlying such securities. The securities may decline in value, face valuation difficulties, become more volatile and/or become illiquid. They are also subject to prepayment risk, which occurs when mortgage holders refinance or otherwise repay their loans sooner than expected, creating an early return of principal to holders of the loans.

Past performance does not guarantee future results. One cannot invest directly in an index.

The beginning part of the video at 0:10 is discussing how the yield on the ten-year Treasury hit 1.36% on July 8th, 2016, which was the lowest level it has ever been.  Since then, it has climbed steadily higher, moving dramatically higher post-election in November and peaking at 2.62% in March of 2017.

The Bloomberg Barclays U.S. Aggregate Index is an unmanaged index representing the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through, and asset-backed securities.

Duration measures the interest rate risk of the Fund. It is an estimate of the approximate percentage change in the Fund’s net asset value resulting from a one percentage point change in interest rates.

Alpha measures excess return relative to the market that is attributable to active portfolio management.

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