My Quest for Higher Yields

MARKET action along with recent readings on employment and inflation imply the onset of a troublesome cycle: shrinking cash yields with negative pressure on returns for long-term high-grade corporate and Treasury bonds. Despite the knee-jerk Treasury-bond rally sparked by the dismal early-September jobs report, I expect interest rates to ascend sharply along the outer years of the yield curve—regardless of the Federal Reserve's imminent campaign to ease short-term rates.

- INCOME INVESTING BY JEFFREY R. KOSNETT

All year, I have emphatically warned against long-duration fixed-income investments, and wisely so: The iShares 20+ Year Treasury exchange-traded fund, for example, lost 10.3% of its net asset value for the 12 months ending August 31, cannibalizing its interest payments more than two times over. Long-term investment-grade corporate bond funds have also shed enough net asset value to barely break even across one year. Many of these portfolios carry durations of 8 or higher, which I deem to be a red line. (Duration is a measure of interest rate sensitivity; a duration of 8 implies an 8% loss in net asset value if interest rates rise one percentage point.)

At the same time, short and ultrashort bond and loan funds keep thriving, even with signs of economic weakness. One exemplar is