Stock to Sell #6 – iShares Barclays 20+ Year Treasury Bond Fund (TLT)
Long-term bonds and bond funds like iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT) should be sold because interest rates are at the lowest levels in over 100 years due to a policy of quantitative easing. When the Fed stops buying bonds, interest rates will rise and bond prices will plummet. It is estimated that a 1% move up in interest rates could take 10-year T-bond prices down 8%, and a 2%-3% move up could result in a 20% to 30% drop in bond prices.
In April, fear of a stock market correction and the Fed’s stated policy of buying $85 billion per month of bonds caused a rebound in bond prices. This recent rally presents holders of TLT and other long-term bonds and bond funds, with an excellent opportunity to sell and place the proceeds into stocks or money-market funds.