Is the party over for bonds? (VIDEO)

Bond Investors Losing Money

As Treasuries have declined in price, many investors have been caught off guard by something they aren’t used to seeing: negative returns in their quarterly statements. The average corporate bond funds returns are flat for the 2nd quarter and down -2% on the year.

Most people use the 10-year Treasury as the interest rate gauge, which recently hit a 2-year high, and is now trading ~ 2.54. But it’s likely headed back above 3% into year-end.  The recent pullback was largely due in part to the Federal Reserve’s September decision to continue buying bonds at a rate of $85 billion a month.

How do rising yields affect your bond portfolios?

Bond prices usually move inversely to interest rates.  This means that as interest rates rise, the price or value of bonds goes down. The actual price change affected by a 1% move in interest rates is indicated by “duration,” which measures your bond funds sensitivity to interest rates.

Bio: Heather Hughes is an institutional financial sales executive as well as a lover of liberty and the free market. She is a weekly contributor to The Libertarian Republic and an expert on money and the marketplace.