Janet Yellen recently said it was likely the Federal Reserve would raise interest rates this year. Bond values typically go down when interest rates go up, so several of my clients have asked me if they should sell their bonds.
It’s true that bond values usually have an inverse relationship to interest rates. Here’s an example: Let's say you have a bond that is paying 3 percent and the prevailing interest rates are 3 percent. Then interest rates are raised to 5 percent. If you decide to sell that 3 percent bond, do you think anyone would want to buy it when other investments are now available for 5 percent?