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Short-Term Bonds Seeing Biggest Impact From Rising Rates

As the yield curve flattens, shorter duration bond funds are seeing a pretty significant hike in yield.

Short-Term Bonds Seeing Biggest Impact From Rising Rates

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. What are the implications of rising bond yields for bond mutual funds? Joining me to discuss that topic is Russ Kinnel. He is director of manager research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Glad to be here.

Benz: Russ, this is something that appeared in the latest issue of Morningstar FundInvestor, where you and the team looked at what's been going on with bond fund yields. But before we get into that, let's discuss how investors should navigate some of these yield statistics that they see. We've got 12-month yield on the site as well as SEC yield. Which of these numbers should they be paying attention to?

Kinnel: Maybe the SEC yields. The SEC yield is a 30-day yield; the 12-month field tells you what the fund distributed over the trailing 12 months. When interest rates change a lot, the 30-day is going to be a better guide. It's got its own quirks, but it's at least going to reflect the current market a little better than the 12-month yield.

Benz: The SEC yield is sort of a near-term snapshot?

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