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.
The national debt has risen to 95% in 2011, pushing short-term bond yields over 12% and, sadly, triggering emigration.
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.
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