To The Moon

Most investors don’t hold only short-term bonds. Longer bonds pay higher yields, and that’s what attracts them. Many of the popular bond funds are intermediate duration, holding bonds that mature in five to ten years. When longer-term yields rise, these funds get hit too. The maths is simple. When new bonds pay more, old bonds paying less have to fall in price until their yield matches. The longer the bond, the bigger the fall.On 1 October, TLT traded as low as US$76.76, the lowest price since it listed in 2002. A fund that holds nothing but US government bonds, at an all-time low. Does that look safe to you? Some will argue that they hold individual bonds, not a bond fund. The price drop is temporary, because you get your capital back at maturity. That’s true, as long as the bond makes it

Most investors don’t hold only short-term bonds. Longer bonds pay higher yields, and that’s what attracts them. Many of the popular bond funds are intermediate duration, holding bonds that mature in five to ten years. When longer-term yields rise, these funds get hit too. The maths is simple. When new bonds pay more, old bonds paying less have to fall in price until their yield matches. The longer the bond, the bigger the fall.On 1 October, TLT traded as low as US$76.76, the lowest price since it listed in 2002. A fund that holds nothing but US government bonds, at an all-time low. Does that look safe to you? Some will argue that they hold individual bonds, not a bond fund. The price drop is temporary, because you get your capital back at maturity. That’s true, as long as the bond makes it