No. of Recommendations: 0
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.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.