Time to consider change in bond strategy

For the last six-months, I’ve done a monthly report on CD and high-yield savings rates for the personal finance column I write for Examiner.com.  I use MoneyAisle, an on-line auction house to check rates and create a hypothetical CD ladder

For the first time in six months, the check on savings rates showed that rates were the same or slightly higher. Even though savings rates continue at relatively low levels as the economy starts to climb out of the Great Recession, it seems as though we may have hit bottom. Recent economic conditions are improving as evidenced by the Chicago Fed National Activity Index as I mentioned last month.  Longer term economic forecasts are improving, even though we’ve yet to see that optimism reflected in savings rates.

This suggests that you consider two action items:

1. Consider starting to switch your longer term bond holdings to shorter term. As interest rates rise, the value of a bond fund goes down. Longer maturity bond funds are more sensitive it is to rising interest rates. So if you have a long-term bond fund, at least consider moving it to an intermediate term bond fund; if not a short term bond fund. If you have an intermediate term bond fund, consider moving at least some of your holdings to a short term bond fund.
2. Do not lock in long term savings rates. If you have a CD or bond that is coming due, consider a short term maturity date.

This is not a panic, do it right now, kind of move. As the MoneyAisle comparison shows, rates seem to be bottoming out and not moving up yet. But it seems interest rates may be moving in that direction soon. Time will tell, of course, but it is prudent to start watching thinking about your next bond move.