How to Invest on Rising Bond Yields

In real life the damage isn't usually that great, but a 1 percentage point rise in prevailing yields can easily drive a bond's price down by 10%, wiping out years of interest earnings. The longer the bond has to mature, the greater the damage, since its owner would be saddled with a below-market yield for longer.

The bond's owner has an ugly choice: Sell at a loss or keep the bond until maturity to get the full face value, but get a below-market yield until then.

The problem is especially bad for people who use mutual funds for bond investments. Because funds own an assortment of bonds, and regularly replace them to maintain the average maturity promised to investors, the fund itself has no maturity date. So the investor can't just wait to get face value.