Impact of the number of bonds on bond portfolio exposure to interest rate risk

Abstract

This paper investigates the relative importance of the impact of the number of bonds on bond portfolio exposure to interest rate risk. An experimental approach that extends the traditional full valuation approach is designed and implemented with latest data from Bloomberg and from the World Government Bonds. We find that the number of bonds in bond portfolio has a slight impact on the exposure of that portfolio to interest rate risk. This indicates that a bond portfolio with higher number of bonds is slightly less exposed to interest rate risk. This also indicates that a bond portfolio with fewer bonds is slightly more exposed to interest rate risk.