Kenneth Brackett states that we are now confronting a rising interest rate environment for the 1st time in fourteen years. Kenneth Brackett was projecting this in The month of January and urging people to protect themselves. Some people may believe that higher interest levels are usually a good thing. Unfortunately, there is an inverse connection which exists involving interest rates and bond values. As interest rates increase, bond values lower. A simple explanation for why would be: let's say that you own an Alcoa corporate bond that features a declared rate of interest of 4%. If perhaps interest rates rise and people can now buy an Alcoa corporate that is paying 5%, who'll want the 4% bond? You got it - not anyone will, so we will have to discount it to get rid of it. Actually, it will automatically be discounted because it will show on your statements as having lost value.
The last thirteen years have been a really good time for bonds as interest rates happen to be dropping. Everybody knows the Fed is actually intending to bump up rates sometime in 2015. This will be tied to the unemployment figures. They would like to start to see the marketplace improve just before they make this modification. If we know that the Federal Reserve is not raising rates, then how come the 10 year treasury moving so much? Fyi, it has gone from 1.6% in December to 2.6% as of July, 2013. There are two reasons for this. First off, we have so many people not satisfied with 1 or 2% return on their money who are now jumping into the stock trading game to get better returns. As plenty of people sell bonds, their value goes down and the yields go up. Secondly, we have a response to what the marketplace is doing in anticipation of what the Federal reserve will be doing.
What Kenneth Brackett advises is shortening the maturities on all bond positions to under 3 years. This will help to reduce the losses because of rising interest levels.