Published on: 06/20/2025 • 8 min read
How To Approach Bond Investing Strategies When Interest Rates Rise

When central banks begin raising interest rates, the impact on bond markets creates both risks and opportunities for sophisticated investors. Higher rates can quickly reduce bond values and upset well-planned strategies for preserving wealth. However, within this challenge lies a range of opportunities that can be unlocked through smart planning and timely adjustments.
For portfolios of significant size, these shifts demand thoughtful consideration beyond the standard playbook. Here are several strategies to consider amidst rising interest rates:
- Shorten duration to reduce interest rate sensitivity, focusing on bonds with maturities of five years or less to weather interest rate volatility while maintaining income generation
- Implement bond laddering strategies to distribute interest rate risk across varying maturities, creating regular reinvestment opportunities as bonds mature and potentially capturing higher rates over time
- Consider premium “kicker bonds” with above-market coupons and short-term calls, which can provide enhanced yield while offering better performance regardless of whether rates rise or fall
- Explore floating-rate securities that automatically adjust their interest payments higher as benchmark rates increase, providing natural insulation against rising rate environments
- Evaluate unconstrained bond funds managed by skilled teams who can actively allocate across the fixed income spectrum without benchmark constraints, potentially adding value through tactical positioning
Don’t let shifting interest rates derail your wealth preservation and bond investing strategies. Schedule a conversation with Avidian Wealth Solutions today to develop a resilient bond strategy that protects and enhances your portfolio through changing economic cycles.
What happens to bonds when the interest rate increases?
When interest rates rise, existing bonds with lower coupons lose value, as newly issued bonds offer more attractive yields. This inverse relationship means bond prices fall as rates climb, especially for longer-duration bonds, which are more sensitive to rate changes.
For investors with significant fixed income exposure, rising rates can temporarily depress portfolio values while creating opportunities to reinvest at higher yields. Although unrealized losses may appear, well-structured portfolios can benefit over time as bonds mature and income is reinvested at more favorable rates.
High net worth investors must also consider secondary effects. Widening credit spreads and shifting yield curves can reveal value in specific sectors or maturities. The relationship between interest rates and bonds is multifaceted, requiring nuanced approaches that balance immediate price impacts against long-term income objectives and leading many investors to wonder: are bonds a good investment during periods of rising rates?
Should you sell bonds when interest rates rise?
Selling all your bonds when rates rise is rarely the best move if you’re focused on long-term wealth preservation. Instead of panicking, consider strategic adjustments like shifting to shorter-term bonds or adding rate-resistant options to your portfolio (more on this below). A well-built bond ladder already creates natural opportunities to reinvest at higher rates as bonds mature.
In other words, rather than abandoning bonds completely, maintain your core positions while making targeted changes to take advantage of the new rate environment. This approach can even create opportunities to harvest tax losses while positioning your portfolio for better long-term results.
Should you buy bonds when interest rates are high?
High interest rate periods offer excellent opportunities to work towards attractive long-term income. Higher starting yields not only boost your current income but also provide better protection against market swings. Buying quality bonds when rates peak can help lock in favorable yields for years to come, especially in high-quality segments where yields might be unnecessarily high due to market fears.
While perfect timing is impossible, methodically investing across different maturities when rates look historically attractive can significantly enhance your portfolio’s income while also setting up potential price gains should rates eventually fall — creating potential dual benefits for long-term wealth growth and raising important questions about whether managed investment accounts might be appropriate for navigating these complex rate environments.
5 bond strategies for rising rates
1. Shorten duration to reduce interest rate sensitivity
For investors anticipating rising interest rates, focusing on short duration bonds — particularly those with maturities of 1–3 years in most cases — provides a strategic advantage in weathering market volatility. Short-term bonds typically experience less price sensitivity to interest rate changes compared to their longer-duration counterparts.
This approach allows high-net-worth investors to maintain income production while minimizing downside risk as rates climb. Rather than attempting to time precise market movements, this strategy positions portfolios to withstand rate fluctuations while still generating yields substantially higher than traditional cash equivalents or certificates of deposit.
As the yield curve shifts, maintaining flexibility through shorter durations creates opportunities to reinvest at progressively higher rates. This strategy directly addresses the bond fund interest rate risk that concerns many investors.
2. Implement strategic bond laddering
A bond ladder represents a foundational risk management strategy for sophisticated fixed-income portfolios. This approach involves purchasing several bonds with staggered maturity dates spaced evenly across multiple years, creating regular intervals for reinvestment.
The structure provides multiple benefits during rising-rate environments: enhanced liquidity through regular maturity dates, reduced interest rate timing risk by spreading investments across various points in time, and the ability to capitalize on higher yields as portions of the portfolio mature and can be reinvested.
For high-net-worth investors, ladders can be constructed across various fixed income asset classes, potentially incorporating municipal, corporate, and government securities to achieve optimal tax efficiency and yield enhancement while maintaining appropriate risk parameters.
Bond investors should also acknowledge that bond laddering also carries the potential to reduce yields in steeply inverted yield curve environments.
3. Consider premium “kicker bonds” for enhanced yield
Kicker bonds offer a sophisticated approach to fixed income investing that can be particularly beneficial in uncertain rate environments. These premium bonds feature above-market coupons with short-term call provisions, creating a compelling risk-reward profile. If interest rates increase, the likelihood of early calls decreases, allowing investors to maintain higher-than-market income streams. Conversely, if rates decline, investors will have secured superior short-term yields compared to standard bullet maturities.
The “kick-up” in yield occurs when call dates pass without the bond being called, potentially providing substantial yield advantages over comparable securities. While these structures trade at premiums above par value, the enhanced income characteristics can provide meaningful advantages for income-focused high-net-worth portfolios, particularly when conventional fixed income approaches may be challenged by the interest rate environment. This represents one of several alternative investing strategies worth considering in rising-rate environments.
4. Explore floating-rate securities for natural rate protection
Floating-rate bonds represent a direct hedge against rising interest rates by featuring variable interest payments that adjust periodically based on benchmark rates such as the Secured Overnight Financial Rate (SOFR) or the federal funds rate. Unlike traditional fixed-rate instruments that lose market value as rates climb, floaters provide natural insulation by resetting their coupon payments higher as the interest rate environment shifts upward. This creates cash flow alignment with the prevailing rate environment, potentially preserving capital while enhancing income as rates rise.
For sophisticated investors, floating-rate securities can serve as a strategic allocation within a diversified fixed income approach, though careful consideration should be given to credit quality, as many floating-rate instruments come from issuers below investment grade. The trade-off between interest rate protection and credit risk requires thoughtful analysis, particularly for those managing substantial wealth with specific preservation objectives.
5. Evaluate unconstrained bond funds for tactical flexibility
Unconstrained bond strategies offer high-net-worth investors access to flexible, actively managed approaches that can navigate interest rate cycles without traditional benchmark constraints. These strategies empower skilled managers to allocate dynamically across the full fixed income spectrum, potentially limiting interest rate risk while capturing opportunities across sectors, geographies, and credit qualities. Their benchmark-agnostic approach enables duration management that can be significantly shortened during rising rate environments, potentially preserving capital while maintaining income generation.
Further, this can complement traditional fixed income allocations by offering diversification benefits and access to specialized market segments that may be challenging for individual investors to access efficiently. For those with significant assets, unconstrained approaches offer sophisticated risk management that can adapt to changing market conditions rather than remaining tethered to conventional index-based strategies that may face headwinds during rate-tightening cycles.
That said, because unconstrained bond funds are manager-dependent, their performance and attached fees can vary, and are not guaranteed to outperform other more passive strategies.
Maximize opportunities in any rate environment with Avidian Wealth Solutions
Navigating bond investing strategies during rising interest rate environments requires sophisticated expertise and a personalized approach. Whether you’re weighing the bond fund vs. individual fund decision or seeking to optimize your existing fixed income allocations, the right strategy depends on your unique financial situation, risk tolerance, and long-term objectives.
At Avidian Wealth Solutions, our comprehensive investment management services help high-net-worth investors implement resilient bond portfolios designed to help preserve wealth while capitalizing on emerging opportunities throughout changing rate cycles.
The strategies outlined above represent just a portion of the specialized fixed income approaches available to sophisticated investors. To develop a tailored plan that aims to address your specific needs and objectives, we invite you to schedule a conversation with our experienced advisory team. With offices conveniently located in Houston, Austin, Sugar Land, and The Woodlands, we’re positioned to offer the personalized attention and experience you deserve.
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