The Federal Reserve has famously lowered interest rates to the lowest they've ever been to help avert an implosion of the international financial system. Now that the crisis has passed its zenith, and in combination with the explosion of federal deficits, interest rates have only one way to go: up. At the same time, investors have flocked to safety amidst stock market turmoil and bond mutual funds have been receiving record inflows. As interest rates rise, many of these popular bond funds will face downward pricing pressure. Investors who thought they were going someplace safe may be in for a surprise. However, there are alternatives in bond mutual funds that should do well as interest rates rise. They are Treasury Inflation Protected Securities (TIPS) funds and Bank Loan funds. These aren't making headlines yet, but the time to look into them is now.
Brennan R. Redmond
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).