Tags: Hulbert | rates | bond | returns

Hulbert: Rising Interest Rates Don't Hurt Bond Returns

By    |   Monday, 07 April 2014 09:15 AM

Conventional wisdom has it that when interest rates rise, which means bond prices fall, bonds turn into a losing investment.

But that's not the case, says Mark Hulbert, editor of Hulbert Financial Digest.

"A review of past rising-rate periods shows that bond investments performed surprisingly well," he writes in The Wall Street Journal.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

"So don't be too eager to let the fear of higher rates lead you to sell your bonds and move into assets — such as gold — often billed as providing protection during such times."

While long-term interest rates have declined this year, many experts think rates will rise across the entire yield curve for at least the next several years.

The reason why bonds can offer attractive returns in times of rising rates is that as bonds mature, investors can reinvest the money at higher yields, more than compensating for lower bond prices, Hulbert says.

He cites the period from 1966 through 1981, when the yield of five-year Treasury notes tripled. Yet during that time, a portfolio of those notes generated a 5.8 percent annualized return, according to Morningstar's Ibbotson Associates.

Last week, Treasury notes maturing in five years or less rose for the first time in three weeks amid lessened expectations that the Federal Reserve will raise interest rates as soon as next April.

"We got a jump in the intermediate part of the curve," as the market shifted back rate-hike anticipation, Kathy Jones, a fixed-income strategist at Charles Schwab, tells Bloomberg.

"The rise in the five-year yield had been pricing in something sooner rather than later. I don't think that's in the cards."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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InvestingAnalysis
Conventional wisdom has it that when interest rates rise, which means bond prices fall, bonds turn into a losing investment.
Hulbert,rates,bond,returns
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2014-15-07
Monday, 07 April 2014 09:15 AM
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