Saturday, June 5, 2010

Bond Funds Can Lose Money

"'A multiyear move of rising interest rates is an environment that most people haven't seen before,' said Tom Atteberry, co-manager of FPA New Income Fund.
The last time rates rose over several years was three decades ago. From June 1977, when the rate on 10-year Treasurys was 7.33%, rates climbed steadily, peaking at 15.32% in September 1981. And as rates rose, bond funds suffered.
Long-term bond funds were on average down 0.7% in 1977, lost 1.2% in both 1978 and 1979 and 3.9% in 1980, according to Morningstar. Each year's loss was relatively small, but the losing streak lasted for four years."