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BUSINESS A25
Monday 21 September 2015
Of Mutual Interest:
What’s next for bond funds after the Fed’s decision?
STAN CHOE prices. And even though most optimistic manager demand for existing bonds largest category of bond
AP Business Writer the Federal Reserve didn’t acknowledges: Bond funds falls because their yields funds focuses on those ma-
NEW YORK (AP) — Relief raise its benchmark for won’t do as good a job suddenly look less attrac- turing in four to 10 years.
washed over the bond short-term rates this past as in prior years, because tive. That makes their prices Several factors are keeping
market this week after the week, the majority of its they’re paying much less drop. inflation low, including the
To see what rising rates can plummeting price of oil and
In this June, 2015 photo, people walk past the Marriner S. Eccles Federal Reserve Board Building do to bond mutual funds, the scarcity of pay raises for
in Washington. Federal Reserve policymakers have slightly lowered their projections for growth look to 2013, when the many workers. Global eco-
and inflation in the next two years, an outlook that likely factored into their decision to hold off yield on the 10-year Trea- nomic growth is also under
on raising interest rates. sury nearly doubled in eight pressure as China’s gains
months. The average inter- slow sharply, while Europe
(AP Photo/Andrew Harnik) mediate-term bond fund and Japan struggle to kick
lost 1.4 percent. start theirs.
Federal Reserve decided policymaking committee in interest. “I don’t think it’s Investors can insulate them- Add that together with the
to hold off on hiking interest still expects it to happen going to be Armageddon” selves by buying individual slow, steady pace that the
rates. But many investors later this year. when the Federal Reserve bonds and holding them Federal Reserve has prom-
were left to wonder: Was it Even so, bond funds can still does hike interest rates, until maturity. That way, ised for short-term interest
just a temporary reprieve? be a shock absorber, offer- says Jim Kochan, chief even if the market price rates, and fund managers
The stakes are high for bond ing some stability when the fixed-income strategist for drops for a bond, they expect longer-term inter-
mutual funds, which are stock market goes on an- Wells Fargo Funds Manage- won’t necessarily feel it. But est rates to rise modestly
supposed to be the safe other of its dizzying drops, ment. “It’s a healthy move they would lose out on the and gradually. In that sce-
part of our portfolios. Inves- fund managers say. They’re away from zero.” extra income that a new, nario, bond funds could
tors have been fretting for looking to offer reassurance higher-yielding bond would avoid losses. Their price will
years that interest rates are following predictions for big -WHY RISING RATES ARE A have provided. Plus, most drop as interest rates rise,
set to rise, something that losses for bonds. There’s just FEAR investors prefer a diversified but the income they pro-
would knock down bond one caveat that even the When interest rates rise, fund portfolio of thousands duce could help offset the
of bonds. declines. And the income
could be reinvested in
-WHY BOND FUNDS CAN higher-yielding bonds.
AVOID BIG LOSSES
The Federal Reserve con- -WHY EXPECTATIONS HAVE
trols interest rates for very TO BE LOWER THAN BEFORE
short-term loans, ones that Bond funds have histori-
banks make to each other cally helped give a sense
overnight. It has less control of security when the stock
over longer-term interest market plummets. During
rates. the 2008 financial crisis, the
A big factor influencing 10- largest category of stock
year Treasury yields is where funds lost 37.8 percent,
inflation and economic while many bond funds
growth are heading, and posted gains.
neither looks all that strong. And among funds that lost
That should help limit the money, bond funds gener-
rise of longer-term rates, ally had more modest loss-
fund managers say. The es than stock funds. q
VW chief “sorry” after EPA says firm skirted clean air law
PAUL WISEMAN gation and promised that half of 2015. But a hit to its Volkswagen marketed the Jetta two years ago.
TOM KRISHER the company would coop- reputation from the emis- diesel-powered cars, which “The selling point,” for the
AP Business Writers erate with regulators. sions revelations could account for about 25 per- Diesel Passat was that the
WASHINGTON (AP) — The The EPA said Friday that VW hamper its efforts at a sales cent of sales, as being bet- technology was so good,
CEO of Volkswagen apol- used software that allowed rebound in the U.S. Be- ter for the environment. Af- he said. Now, Shah said he
ogized Sunday and VW its diesel cars to release tween 2013 and 2014, VW ter the EPA announcement, plans to bring the car back
customers said they felt fewer smog-causing pollut- brand sales plummeted 10 the automaker withdrew to the local dealer to have
duped after the Environ- ants during tests than in re- percent even as overall in- ads for its diesel cars from it examined and doesn’t
mental Protection Agency al-world driving conditions. dustry sales rose 6 percent. youtube.com and asked want to buy another Volk-
revealed that the German The cars, built in the last U.S. buyers want SUVs, and dealers to stop selling 2015 swagen. “Once they cheat
automaker skirted clean air seven years, include the Volkswagen doesn’t have diesel cars with 2.0-liter en- you on this issue, what other
rules by rigging emissions Audi A3, VW Jetta, Beetle, competitive vehicles to of- gines, according to a per- issues can they cheat you
tests for about 500,000 die- Golf and Passat models. fer them. son familiar with the matter on?” he said. “You don’t
sel cars. The agency ordered VW The influential magazine who requested anonymity. trust them.”
“I personally am deeply to fix the cars at its own ex- Consumer Reports almost Some VW customers were San Francisco resident Mar-
sorry that we have broken pense. VW also faces fines immediately suspended furious. sha Riggs, who owns a 2009
the trust of our customers that could add up to bil- its “recommended” rating Zeeshan Shah, 39, of Ful- Jetta SportWagen, said she
and the public,” Volkswa- lions of dollars. from the Jetta and Passat ton, Maryland, said that was shocked. “I bought this
gen chief Martin Winterkorn VW edged out Toyota to diesels until it can get a re- he bought a Volkswagen car because I thought it
said in a statement. He said become the world’s top- call repair and re-test the Diesel Passat 2015 model was clean,” she said. “And
VW has ordered an investi- selling automaker the first cars. in July after he totaled his it’s not clean.” q
