iShares Barclays 20+ Yr Treas.Bond (ETF) (TLT), iShares Barclays 1-3 Year Treasry Bnd Fd (SHY): Why Shorter-Term Bonds Might Not Be Your Best Bet

In some cases, the rate rises implied by the yield curve are even more dramatic. Two-year bonds currently yield less than 0.5%, while three-year bonds yield about 0.9%. An investor who bought a three-year bond now would have to be able to find a two-year bond in 2016 that carried an interest rate of more than 3% — six times what two-year Treasuries pay currently.

Similar circumstances govern inflation-protected TIPS right now. In fact, with short-duration TIPS carrying negative real returns, it’s hard to make progress after inflation without going long.

Taking the sure thing
Of course, it’s possible that rates will, in fact, rise quickly enough for bond investors to profit from making repeated investments in short-term securities. Yet, for years, bond-market bears have expected that to be the case, only to have their expectations thwarted by continued low rates.

Before you reflexively move everything into short-duration bonds, consider the loss of yield that you’ll suffer immediately as a result. You might well end up on the short end of the stick in the long run.

The article Why Shorter-Term Bonds Might Not Be Your Best Bet originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. 

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