In 2021 this column ran an article titled, Reward-Free Risks. It exposed the risk in Treasury bond funds that many thought were safe. Treasury bond funds were mostly all risk and very little reward. I even wrote that ETFs like the iShares 20-plus Year Treasury (TLT) are almost guaranteed losers.

What has happened since has confirmed my view. With the rapid rise in interest rates a fund that yielded only 1.52% (now it yields 2.76%) became less valuable. Since its 2020 high TLT fell 30% and it is down 18% this year alone.

Treasuries are more favorably priced now but I’m still not interested. Why? Inflation over the next decade will almost surely average more than the Treasuries yield. And you have to pay taxes on the interest as well if they are owned outside of an IRA. Those buying a 10-year Treasury today may incur a real (after inflation) loss. That makes no sense.

It is even harder to make a case for a Treasury fund or ETF, because unlike an individual bond, where a holder knows what to count on at maturity, a fund never matures. As individual issues mature the fund manager replaces them with newer ones. That means as interest rates rise, the price of a fund can fall and fall (bond prices move inversely with interest rates), more than offsetting the small interest payments. This year is Exhibit A.

Many other fixed-income funds suffered as rates rose. The iShares Investment Grade Corporate Bond ETF (LQD) has lost 14% this year, which is worse than the S&P 500’s return. But junk bond funds are tied more to the strength of the economy than they are to rising interest rates. The economy is strong now, but many economists are saying the “R” word. SPDR High Yield Bond ETF (JNK) is down 9% this year. Since interest rates are rising, I prefer a high-yield fund with shorter maturities. My favorite is SPDR Short Term High Yield ETF (SJNK).

Bottom line: Bonds have had their worst start to the year in more than 40 years, robbing investors of a traditional haven during bad times. The steep losses came as a surprise to many Treasury and high quality corporate bond fund holders. Their investments were riskier than they thought … unless they have been reading this column.

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.