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Experts: Don't Rush to Sell Your Bonds

By Dan Weil   |   Monday, 01 Jul 2013 08:35 AM

While interest rates have soared since the beginning of May, that doesn't mean you should dump your bond holdings, experts say.

They tell The New York Times that bonds continue to represent an important counterweight to stocks in investors' portfolios.

The 10-year Treasury yield soared to a 22-month high of 2.66 percent last week, up 100 basis points from May 2.

Editor's Note:
How You Lost $85,000 During the Last Decade. See the Numbers.

That has led investors to pull $76.5 billion out of bond mutual funds and exchange-traded funds in June through last Wednesday, according to TrimTabs. That represents a record for an entire month.

But it doesn't mean you should jump on the bandwagon.

"The role of bonds in a portfolio has always been to be a ballast or a diversifier to equity risk," Francis Kinniry, a principal in the Vanguard Investment Strategy Group, told The Times. "And that is very true today. Yields are low, but this is what a bear market in bonds looks like."

"It's a futile game to base portfolio moves on interest rate guesses," said Milo Benningfield, a financial adviser in San Francisco.

"Investors should take a strategic approach designed around the reason they hold bonds — and then sit tight whenever hedge funds and other institutions shake the ground around them."

Bond luminaries Jeff Gundlach of DoubleLine and Bill Gross of Pimco warned investors last week not to overreact to Federal Reserve Chairman Ben Bernanke's comments that the Fed may taper its quantitative easing this year.

"I do believe July will not be the same type of month," Gundlach, said in a webcast for investors, according to Bloomberg. "There are profits to be made in the bond market between now and the end of the year."

Gross told the news agency that 10-year Treasury yields could drop 25 basis points. A move that size from Thursday would put the yield at 2.24 percent.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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