Financial Accounting Blog

Thursday, June 24, 2004

Bonds and Rising Interest Rates. The NY Times gives a good explanation as to how a change in interest rates can affect the bond market.
The Federal Reserve is poised to start raising interest rates at the end of the month. Yields on the 10-year Treasury bond are climbing steadily, and bond prices, which move in the opposite direction, have been falling since March. So far this quarter, fixed income funds are down an average of 2.5 percent, according to industry tracker Lipper Inc.
The article offers advice on actions that should be taken by those who aggressively manage their portfolios.
``If you're someone who really does truly actively trade, if you reallocate once a quarter, it's probably a good time to be entirely short, or not in bonds at all,'' said Andrew Clark, a senior research analyst with Lipper. ``But if you're a passive, long-term investor, as long as you're diversified, you can ride this out.''
The author also suggests that if you are invested in a bond fund that the managers of the fund are probably already making adjustments to keep pace with rising interest rates.