Asked by Anonymous
Updated on 19 Apr 2019
Bond immunization is an investment strategy used to minimize the interest rate risk of bond investments by adjusting the portfolio duration to match the investor's investment time horizon. It does this by locking in a fixed rate of return during the time the investor plants to keep the investment without cashing it in.
Typically, when interest rates increase, bond prices decrease. An immunized bond portfolio gives the investor a specific rate of return regardless of what happens to the interest rate during the time period. In other words, the bond is "immune" to fluctuating interest rates.