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Rising and falling interest rates can have a significant impact on US Treasuries, which are issued by the US government. Other bond types, such as corporate bonds and mortgage-backed bonds, could be impacted differently due to credit risk (i.e., concerns about the issuer’s ability to make timely bond payments) and other factors.

The Hypothetical Impact of Rising and Falling Rates on Treasuries (as of 12/31/23)

The Hypothetical Impact of Rising and Falling Rates on Treasuries - as of 12-31-23

A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. For example, +100 bps is the equivalent of a 1% increase in interest rates. Data Sources: Bloomberg and Hartford Funds, 2/24.

 

The Interest-Rate See Saw 

Bond prices and interest rates have an inverse relationship: When interest rates rise, bond prices fall and vice versa—just like a see saw.

Higher interest rates allow bond investors to collect more interest on new bond purchases, but the principal value of their existing bonds will drop in value. When interest rates increase at a slow and steady pace over several years, bond investors may not feel the impact too much because the higher interest payments help offset the decline in bond principal. When rates rise rapidly, however, it can be painful because the drop in a bond’s principal value is greater than the additional interest income.

 

Bonds and Interest Rates Have an Inverse Relationship

Bond and Interest Rates Have an Inverse Relationship

For illustrative purposes only. Assumes a bond with a fixed semi-annual coupon and 10-year maturity. Source: Hartford Funds.

 

Purchasing bonds when interest rates are at or close to their peak could be a prudent strategy for capital appreciation since the principal value of bonds will likely increase as interest rates fall. You could also consider purchasing an actively managed bond fund or ETF to let professional money managers decide how to navigate changing interest rates.

 

Talk to your financial professional for help with managing interest-rate risk in your fixed-income portfolio.

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall.

All information provided is for informational and educational purposes only and is not intended to provide investment, tax, accounting, or legal advice. As with all matters of an investment, tax, or legal nature, you should consult with a qualified tax or legal professional regarding your specific legal or tax situation, as applicable. The preceding is not intended to be a recommendation or advice. Tax laws and regulations are complex and subject to change.

CCWP142 3368892

The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, or ETF summary prospectus and/or prospectus, which can be obtained from a financial professional and should be read carefully before investing.

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