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Author: foobar73 Big red star, 1000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: have bonds had their run? Date: 11/16/2001 11:59 AM
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I'm also confused about bond mutual fund performance in a rising interest rate environment. When the interest rates go back up, the bond prices will drop. But wont the yield then go up and it be (basically) a wash? How were bond fund yields performing during the rising interest rate climates of the past?

It is a "wash" if you can hold on to the fund long enough to have the increased yield make up for the lost value. If interest rates jump up suddenly, and you have to sell the next day, you will be forced to sell at a loss, and the extra yield does not help you any.

Also, there is "opportunity cost" lost as well. You could have instead held your money in a money market fund until rates rose, and bought the bond fund at a lower price (and have more units), rather than pay too much for the bond fund in the first place.
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