Originally Posted by bobbee25
If you purchase intermediate term bonds and the interest rate goes up 1%, it appears that you would loose around 4%. If the bonds are paying 5 - 8% now and you loose 4%, seems like you would still be ahead of those 2% CDs.
Here is one example:
VFITX, Vanguard Intermediate Treasurys
duration = 5yrs
30day SEC yield = 2.4%
So if 5yr Treasurys move up 1% this year, maybe you get 2.4 - 5*1.0 = -2.6%
However, rates could move up a lot slower or not move up at all or go down.
So if one is going into VFITX it should be with the intention of staying fairly long term i.e. for the fund's duration of 5yrs. Then if rates move up you will be getting higher yields as a compensation for taking the rate rise bath. In an interest rate cycle (rates go up, rates go down) this can even out.
Another strategy would be to stay short term and as rates move up go out longer term. Say when 5yr Treasurys are at 4% put in 25% of your funds, then at 4.25% put in another 25%, etc. Just a thought.