I'm not sure quite how to ask what I want to ask, so please excuse, in advance, the quite possible poor framing of the question.
The received wisdom is that rising interest rates are bad for bonds - and all things being equal, they very likely are are. However, I recall a post, probably on The Lemon Fool, possibly in this forum (but also possible are "Passive Investing" and "Investment Trusts and Unit Trusts") suggesting that they aren't quite as bad for bond ETF's/Investment Trusts/Units Trusts as one might intuitively imagine.
My limited recollection of the post was that the rationale may have been that rolling reinvestment of maturing issues at higher rates minimised the downside - but I may misrecall completely. Further, even if I recall correctly, there may be other preconditions, e.g. steadily/gently rising rates as opposed to lurching/rapidly rising ones. Finally, the flip side of the argument would presumably be that lower rates have less upside that one might initially imagine.
If anyone can recall a link to the salient post, I would be grateful. Equally, if anyone cares to address the point from first principles, irrespective of the existence or otherwise of the original post, it would also be appreciated. If looking for a couple of examples to consider the behaviour of in a rising interest rate environment, may I suggest two of my holdings
- VAGP - A global bond ETF with an average maturity of around 9 years and an average quality of around AA-
HDIV - A global debt and fixed income Investment trust with a median quality of around BB
As you might imagine, I am asking as I contemplate if and how I should cater for the possibility of rising interest rates around the world in the medium term.