Rising Rates and Bond Portfolios

Rising interest rates late in 2016 took a toll on bond prices, and were the catalyst for one of the worst quarters for bonds in recent decades. Current expectations are for interest rates to move gradually higher in 2017. While rising rates can be a headwind to bond performance in the near term, they don’t impact the coupon rate or cash flow associated with most bonds over time. Over the long-term, higher yields are actually a positive for investors. Even if they remain fully invested in bonds throughout the course of a rate hike cycle, investors should expect to achieve a better return over the long-term when rates rise.