With investors' attention now squarely focused on when the Federal Reserve will raise interest rates, is this the time to dump all your bond holdings?
No, says
Johnathan Burton, assistant commentary editor for MarketWatch.
"Parts of the bond market can actually do quite well in this world," Mark Kiesel, chief investment officer of global credit at Pimco, tells Burton.
The Fed is expected to raise rates only slowly, and aging investors gravitate to fixed-income assets.
High-yield bonds often thrive when rates rise, if the increase reflects a strengthening economy. "Investors can have greater confidence in high-yield securities nowadays, since the healthier U.S. economy lowers the risk that such a marginal borrower will default," Burton notes..
Municipal bonds often strengthen for the same reasons. Floating-rate bonds benefit too, as their interest payments get adjusted upward.
Among investment-grade corporate bonds, David Nagle, a managing director at asset manager Babson Capital Management, likes the banking and insurance sectors, Burton reports.
One strategy to deal with rising rates is a laddered bond portfolio, with maturities ranging across the yield curve. That way when a tranche of your bonds matures, you can reinvest the money at higher rates.
Meanwhile, the 10-year Treasury yield dipped to 2.33 percent Thursday.
"Even with the strong [September] jobs report Friday, you saw very weak wage growth, falling inflation expectations, a firmer dollar and a continuing weak global growth story that has kept a bid in Treasurys," Christopher Sullivan, chief investment officer at United Nations Federal Credit Union, tells
Bloomberg.
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