Investing for income in a rising rate market can be tricky. As interest rates go up, the value of bonds go down, causing the potential for short term losses. But, when interest rates go up, the yield on bonds becomes more attractive often causing investors to buy more bonds.
The first quarter of 2018 was difficult for fixed income investors, but the good news is that the outlook has improved for income investors moving forward. Yield levels have been a good indicator of future total returns, so increased yield levels may bode well longer term. Whether investing purely for income or within a balanced stock and bond portfolio, we believe that diversification remains a prudent principle to manage interest rate and credit/default risk.