Bond Funds Struggle as Rates Rise

Rising interest rates and geopolitical tensions cause losses in several bond fund Morningstar categories

Ashis Dash 19 July, 2018 | 9:19AM

The U.S. Federal Reserve elected to maintain rates in May 2018 but followed up with a 0.25-point rise in June, continuing a trajectory of tighter monetary policy that began at the beginning of 2016.

Over the second quarter, the yield on the 10-year U.S. Treasury oscillated between 2.7% and 3.1%, driven by expectations of rising inflation and continued concerns over growing U.S. government debt. The 10-year U.S. Treasury ended the quarter at 2.9%, above its 2.5% starting point for the year.

In general, yields on short- to intermediate-term bonds increased more than those on long bonds, contributing to a flattening of the yield curve. As of June 30, the difference between the 30-year and five-year tightened to 25 basis points at the end of the period from 42 basis points at the quarter's start.

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Ashis Dash  is a Morningstar Fund Analyst

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