When anticipating rising interest rates, a fund manager using an interest rate anticipation philosophy

should reduce interest rate sensitivity by increasing holdings in short-term T-bills and high coupon

bonds, which are less affected by rate increases. The feedback from the document states:

"Interest rate anticipation is a fixed-income investing philosophy that involves moving between long-

term government bonds and very short-term T-bills, based on a forecast of interest rates over a

certain time horizon. Price sensitivity to interest rate movements increases as the term to maturity

increases and the coupon decreases. Therefore, to avoid a large capital loss if interest rates rise, the

fund manager would decrease the fund's interest rate sensitivity."

Reference: Chapter 15 – Selecting a Mutual FundLearning Domain: Evaluating and Selecting Mutual

Funds