As the Federal Reserve gets closer to raising short-term interest rates for the first time in nearly a decade, your bond portfolio might need a quick check-up. That’s because higher interest rates generally don’t bode too well for bonds. Yields and prices move in opposite directions. But before you panic, keep in mind the first rate hike is likely to be small, totaling 25 basis points. Subsequent rate hikes are expected to be slow and gradual. ‘The Fed has told us that they are going to be extraordinarily cautious,’ said Priscilla Hancock, global fixed income strategist at J.P. Morgan Asset Management, based in New York. ‘A small rise in rates at the front end of the [yield] curve is already priced into the bond market. We strongly believe in diversification.’ Hancock defines diversification as a mix of traditional, high-quality bonds with intermediate durations coupled with extended sector global high yield bonds and some unconstrained debt to bring down volatility in your portfolio. Amid low interest rates, Hancock likes corporate high-yield bonds, also known as junk bonds. These are bonds have a higher risk of default – in other words, they’re tied to riskier companies with poor credit. That’s why the returns are higher. Investors are being compensated for taking on extra risk. TheStreet’s Scott Gamm reports from New York.
Subscribe to TheStreetTV on YouTube:
For more content from TheStreet visit:
Check out all our videos:
Follow TheStreet on Twitter:
Like TheStreet on Facebook:
Follow TheStreet on LinkedIn:
Follow TheStreet on Google+:
source
