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Bond Funds That Will Lose Big With Rising Interest Rates
"As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities"...... Exactly....enough said...says it all
The author correctly points out that long duration bond funds and long duration zero coupon bond funds will do very poorly in a rising rate environment.
However, his next point, I do not believe is generally correct when compared to other bond sectors: that high yield bond funds will generally do very poorly in a rising rate environment. He should have picked other bond sectors that should do much worse than high yield bond funds (as a result of rising interest rates, not as a result of other factors, such as credit risk).
Also, his statement that "rising interest rates can worsen yields" does not make sense. (Of course, rising rates can worsen total return, but rising rates obviously do not worsen yields)
"High-Yield Bond Funds: Junk bonds tend to follow long-term interest rates, and rising interest rates can worsen yields, which is the primary reason investors buy these funds. This translates into a recipe for falling prices in a rising interest rate environment."
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However, his next point, I do not believe is generally correct when compared to other bond sectors: that high yield bond funds will generally do very poorly in a rising rate environment. He should have picked other bond sectors that should do much worse than high yield bond funds (as a result of rising interest rates, not as a result of other factors, such as credit risk).
Also, his statement that "rising interest rates can worsen yields" does not make sense.
(Of course, rising rates can worsen total return, but rising rates obviously do not worsen yields)
"High-Yield Bond Funds: Junk bonds tend to follow long-term interest rates, and rising interest rates can worsen yields, which is the primary reason investors buy these funds. This translates into a recipe for falling prices in a rising interest rate environment."