What if you are buying a short- to intermediate-term bond fund, not the bond itself?
For example, if long term bond yields move to 7%, the loss will be 25%.
This is the argument for replacing the promissory notes with a very long-term bond.
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The long-term bond market is also very accommodating today for companies that do not have leveraged balance sheets.
It is long-term bond yields, and the mortgage rates allied to them, that give the economy its tempo.
Long-term bond prices could then drop even more than equities already have dropped.
Last year, the average short-term bond fund gained about 9%, according to Morningstar.
And stick to shorter-term bond funds that have less sensitivity to interest-rate changes.
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You could reduce your interest rate risk by going for a shorter-term bond.
Vanguard Long-Term Bond shares are currently trading down about 0.8% on the day.
With any long-term bond the investor is at the mercy of interest-rate fluctuations.
This is Mr Bernanke's preferred cure, but it has not stopped deflation in Japan, where long-term bond yields are 0.6%.
Investors are attracted to property by the gap between rental yields, around 3.5%, and long-term bond yields, now around 1.8%.
Short term bond yields increased slightly to 3.64% for the benchmark 10-year Treasury, while the 30-year bond yields fell to 4.68%.
American mortgage rates have already risen sharply in the past two months, in line with the jump in long-term bond yields.
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Bonds do provide regular income and, depending on your needs, holding a longer-term bond may still make a lot of sense.
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Osterweis Strategic Income has more credit risk but lower interest-rate risk (due to shorter average duration) than some intermediate-term bond funds.
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Basically, investors are willing to pay more, or accept a lower yield, on a shorter-term bond because there is less risk.
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To prevent yield chasing, most stable value funds prohibit transfers to similar options, such as a money market or short-term bond fund.
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Nor is it just the threat of higher short-term rates and inflationary pressures in America that is driving long-term bond yields higher.
Such low rates will also keep a lid on short-term bond yields.
If inflation trends toward zero (before moving much higher later in the decade), then long term bond yields could naturally fall toward 2%.
Over the past three years real long-term bond yields have been on average 1.4 percentage points higher in New Zealand than in Australia.
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By indicating that short-term rates will stay low until the end of 2014, the Fed is also having an effect on medium-term bond yields.
Markets had a weak open Monday as talk of spending cuts to address the rising national deficit pushed short-term bond yields up slightly higher.
The story is similar with its top bond fund, the Virtus Multi-Sector Short Term Bond Fund, run by Virtus-owned money manager Newfleet Asset Management.
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Every spare dime goes into a short-term bond fund, where it is certain to hold its value and be available when the tuition bill arrives.
That strategy worked well when long-term bond prices were falling sharply.
When long-term bond prices were rising, managers came to regret it.
The overdue migration of institutions and individuals out of money markets and long term bond investments just started based on monthly equity mutual fund inflows.
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