Investors could be surprised if interest rates begin to move higher, which is why the US Federal Reserve should take a gentle approach so as not to disrupt “price sensitivities” in the bond market. Prices can be particularly sensitive due to mechanical factors that typically get overlooked during periods of low volatility, Bridgewater Associates founder Ray Dalio wrote in a September 15 strategy note obtained by ValueWalk. Understanding why the increasing price sensitivity underlies today’s bond portfolios provides insight into performance drivers behind a traditionally significant portfolio diversifier.
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