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Evaluating the Relationship Between Bond Investments and Rising Interest Rates: Doug’s Quiz Corner

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

February 16, 2018

What Happens to Bond Investments When Interest Rates Go Up?

Consider this scenario:

Your friend Bob is concerned about what rising interest rates could do to his bond portfolio. He asks for your assistance in evaluating his bond holdings.

In his current bond portfolio, he has the following holdings:

  • $10,000 face value AA rated municipal bond that matures in 3 months and is currently trading slightly below par.
  • $15,000 of a mutual fund that holds investment grade, floating rate bonds.
  • $20,000 of a short-term, investment grade corporate bond ETF which tracks a broad index of hundreds of bonds.
  • $3,000 of a high yield bond ETF that tracks a high yield index of hundreds of bonds.

Bob has a long investment horizon ahead of him and he won’t need any of the funds invested in his bond portfolio for many years. To top it off, Bob also has another $100,000 of his portfolio invested in various equity market investments. 

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