Higher Rates: A Survival Kit

摘要

For nearly two years, investors have been talking about the day when interest rates would start to climb. Well, the bond market has started to push up long-term rates, and the betting is that the Federal Reserve will start raising short-term rates this summer. Rising rates are usually the bane of bondholders, but not if you own certain investments. "BANK-LOAN" or "prime-rate" funds buy portions of loans made to corporate borrowers. The loan rates are generally pegged at 3.5 percentage points or more above the London interbank offered rate (LIBOR), now 1.17%. Because the rates on the loans change frequently―typically every 90 days―the funds' yields rise .along with interest rates. Indeed, when rates spiked in 1994, the funds rose 6.6% on average, while long-term government bond funds lost 77%, according to fund researcher Morningstar.