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Bond Fund Picks for a Rising Interest-Rate Environment

Our analysts offer these three picks as the Fed is set to raise interest rates.

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Jeremy Glaser: The Fed looks set to raise interest rates this week, and although no one knows what the future pace of increases will look like, many investors are looking for bond portfolios that can withstand a rising rate environment. We asked Morningstar analysts to share three of their top picks. 

Phillip Yoo: Vanguard Short-Term Bond Index is a good option for conservative yet short-duration fixed-income exposure that provides more income than comparable Treasury bonds. The fund tracks the Bloomberg Barclays US 1-5 Year Government/Credit Float Adjusted Index, and has a good indexing tracking record. The portfolio holds about 60% of U.S. Treasury bonds and 40% investment-grade credits, allowing it to offer a yield of 1.9%. Over the last three years, the fund returned about 1.4% annually, which lagged its peers, who took on more credit risk over the same period. Finally, its fee is at 7 basis points, which is hard to beat.

Phillip Yoo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.