Should You Worry About Rising Interest Rates?

Look past the 10-year Treasury yield. Smart investors cast a wide net.

photo illustration of interest rate symbol
(Image credit: Getty Images)

The recent rise in U.S. long-term interest rates blew in suddenly enough for headline writers to dust off fraught phrases such as “bond rout,” “investor boycott” and “tantrum.” (Most bond prices sink when interest rates rise and vice versa.) Talk of a burst bubble colors the financial news here and there; it applies to stocks on a bad day, but more openly and brazenly to bonds. (For more on bubbles, see Are Stocks in a Bubble?) The Federal Reserve seems impatient for inflation to reach 2% and stay there. And inflation expectations heavily influence bond traders’ behavior.

But might this fear and loathing be overblown? The broad Bloomberg Barclays Aggregate Bond index is down 3% so far in 2021. The losses are less for municipals and mortgages, more for long Treasuries and investment-grade corporate debt. To drop 3% is equivalent to kissing away nearly two years of yield, but after consecutive annual 8% total returns, this is far from a bond “rout.”

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.