South Texas Money Management

When Federal Reserve Chairman Ben Bernanke first talked about reducing or tapering the Federal Reserves asset purchase program back in May of 2013, the market response was dramatic. Investors started fleeing bonds, causing bond prices to drop and bond yields to rise. In a rising interest rate environment, the net asset value (NAV) of fixed income mutual funds falls as rates rise. This often leads to shareholder redemptions (they want out!), forcing these bond mutual fund portfolio managers to sell bonds in an unfavorable market.