Much of the buzz in the bond market nowadays is all about bubbles, and not the champagne kind. As a year of respectable gains for government debt funds and even stronger returns for high-yield and emerging market bond funds comes to a close, bond mutual-fund managers are bracing for a period of rising interest rates and diminished returns. There was, perhaps, a taste of what’s to come for bonds in the price declines across a range of categories late in the fourth quarter. The most harrowing drop came in rate-sensitive longer-dated Treasurys, where plunging prices spiked yields to seven-month highs above 3.5% on a benchmark 10-year and 4.5% on the 30-year, in part in reaction to the extension of broad federal tax cuts.
Bond fund investors face tough new era
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