• Longer-term rates will rise in harmony with short-term rates, possible due to mild inflationary pressures in the next few years, keeping the yield curve in a positive slope, as it is today.
In the first scenario, shorter-term bonds funds will suffer the most as their prices decline with each successive interest rate hike. In the second, most bonds across the spectrum will likely experience a decline in value. Currently, the second scenario seems to be more likely.
Bonds have taken their share of lumps over the past week as investors tried to anticipate the FOMC announcement. For the week, the best-performing bonds index was the Standard & Poor’s International Corporate Bond index, gaining 0.34 percent over the past five trading days. On the other end of the spectrum, the Barclays U.S. 20-plus Year Treasury Bond index and the Barclay’s U.S. Treasury Inflation Protected Securities index declined by 1.23 percent over the same period.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate. This article was written by Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH).