Bond ETFs Threatended By Rising Rates (LQD, IEF, AGG)

Since July, 2003, the yield on the 10-year bond has been mostly confined to the 3.9% to 4.7% range. But lately, higher yields are jeopardizing the principal of longer term bonds and exchange traded funds that invest in them.

The iShares Goldman Sachs Corporate Bond ETF (LQD) has traced out a series of lower highs since June 2003. The iShares Lehman 7-10 Year Treasury (IEF) and the iShares Lehman Aggregate Bond (AGG) are both languishing in this rising interest rate environment.  The chart below shows the value of the ETFs and their decline as interest rates rise.

Business Week points out "If the yield can move above 5%, the longer-term implications for yields would be very bearish and would push yields out of this bullish channel and end the 25-year bull market in bonds."