As you know, the stock market has attracted a lot of attention — and for good reason, as we have experienced considerable volatility almost since the start of the year. But if you own bonds or bond-based mutual funds, you might also have concerns. However, it is important to understand why bonds should continue to be an important part of your portfolio.
To start, let’s look at what’s happened with bond prices recently. Inflation has warmed up, leading the Federal Reserve to raise interest rates to help “cool” the economy. And rising interest rates generally increase bond yields – the total annual income investors earn from their “coupon” (interest) payments. Rising yields may cause the value of your existing bonds to fall, as investors will want to buy newly issued bonds that offer higher yields than yours.
— This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.