It has been a couple of months since we’ve addressed interest rates, and today we find that the 10-year Treasury bond (often considered the benchmark of bond yields) has hit 3% again. With the recent economic data surprising to the upside, there is a possibility for rates to rise. As economic conditions improve, many believe there could be a rotation out of bonds and into stocks. In addition, the Fed has recently come out with news that they are going to begin tapering their bond purchases. Many believe this is the first step that inevitably leads to raising short-term interest rates. If this occurs, we would see bond prices fall, and yields rise. For those investors who are thinking that bonds don’t lose value they could be disappointed. Here is the chart of the 10-year treasury yield for the past couple of years to give you some perspective:
This post is not meant to be a prediction. We have no idea where interest rates are going over the next month, year, or decade. But as an investor, it is important to know how rising rates could impact your portfolio. Generally, longer-term bonds will get hit harder than short term. We continue to manage portfolios with caution, focusing on shorter-term bonds, as we believe that risk should be taken with your equities, not fixed income.
