What strategy can protect a bond portfolio from losses in a rising interest rate environment?

Shorting bond futures is a well-recognized strategy to hedge against potential losses in a bond portfolio when interest rates are expected to rise. When interest rates increase, bond prices typically fall; hence, holding bonds can lead to losses. By shorting bond futures, an investor can profit from the decline in bond prices that accompanies rising interest rates. This profit from the futures position can offset some of the losses incurred in the bond portfolio, effectively protecting it from downturns associated with higher interest rates.

In contrast, going long on bond futures would not provide the desired protection in this scenario, as it would result in losses if bond prices decrease. Investing in equities doesn't directly shield a bond portfolio from interest rate fluctuations, as equity markets can also respond negatively to rising rates. Similarly, buying government bonds may not provide adequate protection because, while they are often viewed as safer investments, their values can still decline in a rising interest rate environment, impacting the overall value of the bond portfolio.