{"id":9248,"date":"2021-01-21T15:43:53","date_gmt":"2021-01-21T15:43:53","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9248"},"modified":"2022-02-26T13:05:57","modified_gmt":"2022-02-26T13:05:57","slug":"how-will-rising-interest-rates-affect-bond-investors","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-rising-interest-rates-affect-bond-investors\/","title":{"rendered":"How Will Rising Interest Rates Affect Bond Investors?"},"content":{"rendered":"\n

Megan P. from Dover,\nDE asks: <\/em>Good Evening Mitch, my question today is about investing in bonds.\nI read in a previous column of yours that you expect long-term interest rates\nto rise later this year and beyond. What does that mean for bond investors?<\/p>\n\n\n\n

Mitch\u2019s Response: <\/strong><\/p>\n\n\n\n

Thanks for emailing your question, Megan, and thanks for\nreading. I do indeed believe we will see some upward pressure on the long end\nof the yield curve later this year and in ensuing years, as inflationary\npressures pick up on the heels of massive growth of the M2 money supply. There\nare a few implications for bond investors if that happens, in my view. <\/p>\n\n\n\n

As long as the US economy continues recovering and perhaps\nincreases the pace of recovery in the second half \u2013 which I believe it will \u2013 inflation\npressures are likely to follow suit. Much of the extraordinary monetary and\nfiscal stimulus has made its way into the real economy, via transfer payments,\nbusiness loans, and outright grants. All of this liquidity sloshing around the\neconomy is likely to give way to inflationary pressures, in my view. That\u2019s\nwhere you get upward pressure on longer term interest rates. Rising interest\nrates means falling bond prices, which could adversely affect performance and\ntotal return for bond investors. <\/p>\n\n\n\n

______________________________________________________________________<\/p>\n\n\n\n

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______________________________________________________________________<\/p>\n\n\n\n

But that does not mean investors should steer clear of\nbonds. While rising rates could certainly impact bond prices in the short-term,\nthey could also help boost longer term returns, assuming that a fixed income\nmanager continues to invest the proceeds of maturing bonds into new bonds with\nhigher yields. This would not only potentially boost returns over time, but\nalso provide progressively higher levels of income for the portfolio. We\nactively manage our bond portfolios here at Zacks Investment Management. <\/p>\n\n\n\n

In the current environment, however, I\u2019d recommend bonds if\nyour main desire is to reduce volatility in your portfolio and protect against\nthe potential for steep losses. In a sense, that kind of advice doesn\u2019t change\nover time \u2013 in stocks\u2019 worst times, bonds tend to hold up better, which\nneutralizes the effect on your portfolio. In 2008, for instance, when the\nS&P 500 tanked -37%, the Bloomberg Barclays U.S. Aggregate Bond Index\ngained +5.2%.2<\/sup> Over time, stocks have been effective for investors\ngetting the long-term growth they need to finance retirement goals, and bonds\noften help to smooth out the ride.<\/p>\n\n\n\n

One final note to consider, however, is that investing in\nbonds is not well-suited for short-term objectives or market timing. So, my\nvery high-level response to your question is that you should invest in bonds\nonly if your investment objectives and\nrisk tolerance call for it<\/em>. If you are looking to reduce volatility in your\nportfolio over time, and you have a goal of generating modest income over long\nstretches, then there is probably a place for bonds in your investment\nportfolio. If you want or need none of those things, then we\u2019d have to take a\ncloser look at whether bonds make sense for you at all.<\/p>\n\n\n\n

When managing the highs and lows of the market, finding the\nright investment strategy can make a huge difference. To help you learn more\nabout strategies that cater to different investment objectives, we have created\nour Dean\u2019s List of Investment Strategies.3<\/sup><\/p>\n\n\n\n

Our Dean\u2019s List describes five of our investment strategies\nthat are ranked in the top of their respective classes, according to\nMorningstar (as of 12\/31\/20).4<\/sup> If you have $500,000 or more to\ninvest and want to learn more about these strategies, click on the link below\nto see how they could potentially benefit you.<\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch expects inflation to pick up in 2021, and discusses the impacts that may have for the bond market<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9248","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9248","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9248"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9248\/revisions"}],"predecessor-version":[{"id":10470,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9248\/revisions\/10470"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9248"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9248"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9248"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}