How should an investor act if interest rates are expected to rise

[patso]

Sounds simple but i always get nailed on these sort of questions. Here is the question?
If interest rates are expected to rise, investors are expted to:
A. Buy short term bonds and sell long term bonds
B. Selll short term bonds and buy long term bonds

 

[cgy5478]

Long term bonds, with a higher duration, is more sentitive to the changes of interest rates.
When interest rates increase, bond prices decrease.
So long term bond price will decrease more than short term bond.
A

 

[S2000magician]

Yup: A.

 

[patso]

Thanks Cgy. Based on your analysis, the investor buys short term and sell long term. However i some question which said that interest rates mean revert over long time horizon and hence if the rates rise, one should sell short term as the long term is likely to revert back to the norm.
However i totally agree with the your comments.

 

[S2000magician]

How do you know that the increase isn’t, itself, the mean reversion?

 

[Unemployed]

“which said that interest rates mean revert over long time horizon and hence if the rates rise, one should sell short term as the long term is likely to revert back to the norm.” - this only true if interest rates already risen. But in your question, you are expecting it to rise.
in other word, mean reversion assumption help you to form an expectation. When you already have an expectation, you should act accordingly