You manage a portfolio of bonds for the Kentucky Teacher Retirement System.
The weighted-average maturity of all bonds in the portfolio is 18.5 years.
According to the actuaries, you must maintain that average maturity (i.e. you cannot increase or decrease the overall weighted-average maturity of the bonds in the portfolio).
McWeber, Zenger and Gnan is a Regensburg-based economic Think Tank. They have forecasted a sharp rise in the U.S. yield curve. The result would be a significant increase in both short-term and long-term interest rates in this country. Understanding the negative impact that increasing rates have on bond values, you are concerned. What are changes that you can make to the bond portfolio to minimize the effects of the interest rate risks?