More US bond investors are seeking out new ways to hedge against the risk of a sharp rise in interest rates in case growth in the world’s largest economy picks up and the Federal Reserve starts to wind up its current stimulus policies.
The US central bank is expected on Wednesday to maintain its current level of bond purchases, which have pushed up bond prices and kept rates low. However, some investors are taking positions in exchange traded funds and leveraged loans that are designed to profit if market interest rates spike higher.
More money has flowed into leveraged loan mutual funds in the first 10 weeks of this year than in the whole of 2012, according to the latest data from Lipper. Loans have floating interest rates and can be used as a hedge against sharply rising rates.