Before evaluating performance, it is important to first review a central concept of investing in bonds. Interest rates have an inverse relationship with bond prices. As interest rates rise, the price for bonds typically drops, and vice versa.
Some active bond managers may seek to use these relationships to their advantage by trying to time the market.2 These managers may reduce their sensitivity to interest rates when they believe rates will rise and, conversely, increase their sensitivity to interest rates when they predict rates will fall. The most common approach for adjusting interest rate exposure is to shorten or lengthen the duration of the portfolio.