As of Feb. 22, the 10 year Treasury bond yield has risen nearly 30% from its all-time low last July: from 1.404% to 1.965%. As rates have risen, prices have fallen and will most likely continue to fall. What does it mean for the average investor? Proceed with caution.
This could be a sign that interest rates will be jumping soon. If and when that happens, bonds will shift from being a secure investment to a liability. As I’ve described on this blog before, those who are left holding them after rates rise will not enjoy the results.
As the economy recovers and other investments look more attractive, bonds will cease to be the safety investment of choice. For those who have moved into this market, it means they will be left holding an investment that no one wants—and one that will lose its value. This potential shift makes it a good time to check with your advisor to ensure that you’re protected.