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Why are bonds performing so poorly over the last two weeks?

I noticed that the ETF and TLT has dropped rather drastically. Is this an overreaction?

Bonds / Fixed Income
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December 2016

Great Question!

This has been a concern for advisors and money managers for some time. If rates rise, as they have done recently, the value of the bonds held by ETFs and Mutual Funds go down in value. That is what happened to TLT. It is usually worse for longer-dated and zero-coupon bonds.

You can think of it like a teeter-totter. As interest rates, and maybe inflation, rise on one end, the value of bonds already issued on the other end drop in market value.

Bonds have a role to play in a portfolio. Advisors and investors just need to be aware of the risks and investment behavior. With regards to it being an overreaction, only time will tell. If your investment strategy is sound, it should not make a huge difference to your portfolio. I take possible moves like this in consideration when I put together client portfolios; because you don’t know when it is a trend, or a temporary overreaction.

Good Luck!

Mark Struthers CFA, CFP®

www.SonaFinancial.com

For Sona’s Educational Series KnowThis! KnowThat! go to:

http://sona-financial.thinkific.com/

This is for informational purposes only. Your specific situation would need to be taken into account. All information is subject to change. Not to be considered investment, tax, or legal advice.

 

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