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Pimco Corporate & Income Opport Message Board

  • MJOHNH1 MJOHNH1 Feb 28, 2010 11:49 AM Flag

    Effect of Rising Interest Rates?

    I have PTY and PML.......We keep hearing about how share price of bond funds should decrease when the general interest rates start to rise (e.g. when FED RESERVE starts to increase Discount Rate).......

    Do ETF bond funds or CEF bond funds escape this for any reason? Will the effect on taxable (PTY) be more or less pronounced than tax exempt (PML)??

    I am clueless........ususally the comments of the effect of increasing interest rates are made in the context of government bonds and government bond funds..........but, is it not true that the effects of rising interest rates will effect all of them.......???

    Any thoughts or suggestions......any authoritative sources on this subject?? Thank you in advance.

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    • mj...The only time we noticed any appreciable affect on bonds due to rising interest rates was when we owned a bond on one company only. Even then we never sold it due any loss in value. We don't worry about that with the 14 CEFs and ETFs we own. Good luck to you. retiredafe8

      • 1 Reply to walsingmalinda
      • "We keep hearing about how share price of bond funds should decrease ..."

        When rates rise the prices of individual bonds and other rate sensitive investments drop. This would also affect unmanaged bond funds, i.e. something similar to unit trusts where the investments are not traded or where the mandate doesn't allow much room for trading or allocation.

        A managed fund, especially one managed by someone like Bill Gross should be able to weather rate changes through management of maturities and different issuers. In fact, for someone as knowledgeable as Gross, changing market conditions should provide him the opportunity to make further gains by playing the market to some extent.

        It doesn't mean that risks do not exist in a fund like PTY, but that there is less risk than if you were attempting to invest in a few bonds yourself.

 
PTY
18.53+0.03(+0.16%)Jul 29 4:02 PMEDT

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