By Jane Baird

LONDON (Reuters) - In the midst of this year's once-in-a-lifetime rally in corporate bonds, some investors already sense the spectre of future interest rate rises destroying much of their gains.

A few are even starting to protect themselves while the risk is still months away and the price of hedging low.

"The biggest risk in credit over the longer term has moved from default risk to interest rate risk," said Jamie Stuttard, head of pan-European fixed income for Schroders, which had $32 billion (19 billion pounds) in fixed income assets under management as of end-June.

Corporate bond funds are sucking in investors because spreads still exceed historical averages, even after huge price gains during the rally. Spreads are the extra yield companies must pay over money market interest rates or government bonds.

At the same time, interest rates are at all-time nominal lows, with the Fed funds rate at zero to 0.25 percent.

Rates could rise amid a benign scenario of economic growth and central bank moves to keep inflation in check, or from a potentially destabilising oversupply of government paper as countries borrow more to fund deficits.

Investor desire to shield against rate rises has swollen Schroders' new SIF Global Credit Duration-Hedged Fund from 12 million to 250 million euros of assets in the past 10 weeks.

"The more retail the type of investor, the more conversations we have had about hedging interest rate risk," said Maria Ryan, director of investment strategy for Barclays Global Investors, with 301 million pounds in fixed income assets under management.