Bond Yields - 2nd Lowest in Last 700 YearsSubmitted by AssetGrade, LLC. on December 7th, 2013
submitted by Patrick Cote on December 7th, 2013
We all know that bond yields have been low recently, but the folks at Global Financial Data deserve credit for helping us all better understand just how low yields are. There was only other period in the last 700 years that had lower yields - the depression in the 1930s.
As a reminder, bonds increase in value when yields drop, but bonds go down in value when yields go up. This means that once yields start to go up, investments in bonds could have an overall loss, as we have started to see in 2013 with a number of bond funds. The funds that were hit were funds with a longer duration, meaning that they invest in longer term bonds.
Bonds still play a critical role in diversifying most people's portfolios. To help reduce the risk, I generally encourage people to avoid long duration bonds. Other types of bonds should also be considered, such as international or high yield, if they fit the investor's risk tolerance.