What Will Higher Rates Do to the Kip 25 Bond Funds?

All of our picks are likely to lose value, but some will suffer more than others.

Defying almost all of the experts, interest rates continue to fall. At one point during the mid October stock-market pullback, the yield on the benchmark 10-year Treasury bond dipped below 2%, a full percentage point below where it stood at the start of 2014. But yields can’t fall below zero, and the lower they go the greater the likelihood that at some point they will turn up. The reversal is likely to occur in 2015, which is when the Federal Reserve has indicated it will begin raising the short-term rates it controls. Because bond prices move in the opposite direction of yields, holders of bonds and bond funds will almost certainly take a hit.

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Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.