Will Your Bond Holdings Come Through in the Clutch?
Investors might be surprised by the low average credit qualities of their bond and allocation holdings.
Bond investors have been battening down the hatches for the past five years, waiting for rising interest rates to materialize. They've been stress-testing their portfolios' durations, swapping into cash in lieu of bond funds, and jettisoning long-term bonds. There has been an opportunity cost to this caution, as the yield on the 10-year Treasury bond has actually dropped during the past five years. Recently, however, bond yields have traced their way back up amid a strengthening economy and the supposition that the Federal Reserve would likely begin raising interest rates later this year.