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3 Bond Funds for a Rising Interest-Rate Environment

These bank-loan and inflation-protected funds should be able to stand up against rising rates.

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Russ Kinnel: Hi. I'm Russ Kinnel, director of manager research at Morningstar. The Federal Reserve raised interest rates a quarter point in March, and it signaled there will be more interest-rate hikes to follow. A fast-growing economy paired with surging inflation have spurred the Fed into action.

Rising interest rates are a bad thing in the short run for most bond funds, so you might want to think about how to play some defense if you have a bond-heavy portfolio. The obvious choice is bank-loan funds. Bank loans adjust their yields with interest rates so that rising interest rates don't hurt their value the way you see with regular bonds that pay a fixed yield.

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.