CHICAGO (Reuters) – Should you be “riding up” the bond yield curve to boost returns in your income portfolio?
While some investors may think that bonds are tame beasts, higher yields always translate into higher risks. There may be some interesting opportunities available to boost income, but you need to be careful. Longer-maturity corporate and Treasury bonds can still give you a rodeo-horse kick.
With the Federal Reserve expected to leave interest rates in the basement for the next two years or so, it’s only natural that you look outside of short-term Treasuries and insured deposits. Many investors have already moved from U.S. short-maturity bonds to longer-maturity issues in corporate, high-yield or corporate “junk bond” funds, according to data from Lipper, a Thomson Reuters company.
The amount of money flowing into high-yield funds alone in January and February — some $10 billion — led all income funds, according to Lipper. Investors pulled money out of short-term U.S. government and international income funds, which showed negative fund flows for February.
If you can afford the additional risk, going for some additional yield makes sense — as long as you’re diversified. While no principal is guaranteed in any bond mutual or exchange-traded fund, you may be able to boost your yield several percentage points.