My broker is suggesting “floating rate bonds” as protection against rising rates. What’s your take?
A: Floating rates bonds sound attractive because the rates are tied to short-term benchmarks like the LIBOR. The thinking is that as rates go up, the bonds adjust concurrently. Tread cautiously, though. Many companies that use floating rate loans are higher credit risks. That means the default rate is higher, too. You don’t want to get caught holding the bag.