Bonds must be unbelievably dull. When the Dow broke 17,000 and when the S&P came withing a stone’s throw of 2,000 – media messengers enthusiastically reported the peachy particulars. In contrast, 10-year German bund yields are currently logging record lows and the vast majority of fixed income ETFs are registering 52-week highs, yet CNBC’s focus remains on the geopolitical impact of Ukraine tensions on stocks.

Might anyone other than a bond fund manager discuss the potential value of bond assets in a portfolio? And why is it that when stocks are rocking, fewer folks question the possibility of additional gains, but when bonds are proving their mettle, everyone raises the threat of rising interest rates?

New 52-Week Highs: Did You Give These Fixed Income ETFs A Fair Shake?
Approx YTD%
Vanguard Extended Duration (EDV)28.5%
iShares Barclays 20+ Treasury (TLT)18.1%
SPDR Barclays Long-Term Corporate Bond (LWC)14.1%
PowerShares Build America Bond (BAB)12.0%
Market Vectors High Yield Muni (HYD)10.8%
SPDR Barclays Muni (TFI)7.6%
iShares iBoxx Investment Grade (LQD)7.3%
iShares Barclays TIPS (TIP)7.0%
S&P 500 SPDR Trust (SPY)6.4%
Dow Jones Industrials ETF (DIA)1.3%

As the president of a Registered Investment Adviser with the SEC, I may not have time to read many of the comments on every article that I write. Yet one comment recently surprised me. In essence, the author explained that “there is no reason why our interest rates have to rise just because someone looks at a chart and sees that they’ve been falling for 32 years. They can fall for 35 and STAY there for another 25.” I agree with that assessment, not so much because of a fundamental or technical evaluation, but because there are no geometric givens in the investing universe.

In October of 2002, at the start of the 10/2002-10/2007 bull market for stocks, scores of high-profile professionals had been asked about the one thing that they felt most confident about. The answer, not surprisingly, was the notion that interest rates would rise. It seemed obvious enough. The Federal Reserve had been suppressing the overnight lending rate. The economy had been coming out of recession. Why shouldn’t rates rise?

The problem with the simplistic commentary was the reality that short-term rates could rise on Federal Reserve tightening and, simultaneously, longer-term rates could stay in the same place or even fall. In other words, the yield curve can widen, stay the same or flatten. And during 10/2002-10/2007, the overall flattening of the yield curve corresponded to exceptionally poor performance for rising rate mutual funds like ProFunds Rising Rates Opportunity (RRPIX). Judging by what happened in the previous stock bull market, as well as what is happening in the current five-and-a-half year run, might the writer of the comment above have a valid point?

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