Why Bond Yields are Rising

Why Bond Yields are Rising ?

Many or our members are asking Why Bond Yields are Rising

Here is the chart.

Why Bond Yields are Rising

It's simple! Bonds are long-term IOUs, and yields rise when the economy gains steam, reflecting the increased demand for loans. Higher yields are good for savers and for people, such as retirees, who use investment income to augment pensions and Social Security.

The drawback: Bond prices fall when rates rise, which hurts investors in bond mutual funds. For example, since the 10-year T-note's low yield of 1.4% in July 2012, the iShares Barclays 7-10 Year Treasury ETF has fallen 7.9%, according to Standard & Poor's Capital IQ. The iShares Barclays 20-plus Year Treas Bond ETF has plunged 18.8%.

The 10-year T-note yield was at 2.99% in late-day trading Thursday but is still historically low, thanks in part to the Federal Reserve's quantitative easing program. The Fed has been buying about $85 billion in mortgage-backed securities and Treasuries each month in an effort to keep rates low. Since the 10-year T-note's debut in 1962, its yield has averaged about 6.6%.

Nevertheless, rising interest rates can be a threat to both Wall Street and Main Street, but as you can see on the chart yields have been travelling nicely since MAY this year, and we would not be surprised to see higher prices soon.

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