Investors Flock to Bond Funds, But What Happens When Rates Rise?
The amount of money flowing into bond mutual funds hit a dizzying pace this year. If the trend continues, bond funds will attract more than twice as much new money as they did in 2008 and a stunning 11 times more than investors are putting into stock funds this year. Although bond funds don’t ordinarily enjoy greater inflows than stock funds, this sometimes occurs during periods of stock price volatility. This development is not surprising, but it is alarming nonetheless. Here’s why. Interest rates are low and the Federal Reserve is likely to keep them low for the foreseeable future.…