What You Need to Know
- Retirees need to understand how rising yields affect bond holdings.
- Many annuity payouts increase in a rising rate environment.
- Variable debt holdings should be paid off as soon as possible as rates increase.
Rising yields affect everyone, but especially retirees, Christine Benz, Morningstar’s director of personal finance, told Susan Dziubinski, Morningstar’s director of content, in a videocast last week.
As Benz noted, higher interest rates hurt bonds: When yields go down, bond prices go up, and vice versa. “What we’ve seen this year is this downward pressure on bond prices,” she explained.
She added that short-term bond funds were down 3% to 4% through mid-May. Intermediate-term funds were down about 10%. Investors should take an audit of what bond funds they hold.