Municipal Bond Forum
Possible impact of rate hike on fund
Q
So let’s say the Fed goes crazy and raises rates a whopping 1/4%, as you suggest in your article, “The Fed Didn’t Move. Cue the Conjecture.” What kind of impact will this translate to someone who owns a high-yield muni bond fund? If you had a liquid $50,000, what would you do with it, if you could only invest for six months?
A
James A. Klotz responds:
Raising the Fed funds rate by a quarter of a point should not impact your open-end bond funds at all unless it triggers significant liquidations by shareholders.
If your funds will be needed in six months, there is no investment we can recommend. The funds should be placed in a money market or bank CD, where your principal is not at risk.
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