When Rates Rise, Bonds Fall. Right?

The math is simple: When interest rates go up, bond prices usually fall. Unlike stocks that can grow their earnings, dividends and cash flow, most bonds pay fixed coupons. When interest rates rise, those coupons typically become less attractive. 

Benchmark bond prices are weakening now. From the recent low at the end of February through mid-May, the yield on the U.S. 10-year Treasury rose more than 60 basis points, while the Bloomberg U.S. Aggregate Bond Index moved into negative territory.^[1] As a result, prices for the Bloomberg U.S. Aggregate Bond Index are in the red. Meanwhile, expectations for higher rates by year-end are rising, according to CME FedWatch.

Bonds Benchmarks Have Weakened while Rate Hedged ETFs Have Risen

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Some Bond ETFs Are Built for Rising Rates

Interest-rate hedged ETFS may offer a measure of defense in the face of rising rates.

The ProShares Investment Grade Interest Rate Hedged ETF (IGHG) and the ProShares High Yield Interest Rate Hedged ETF (HYHG) are designed to provide corporate bond exposure with a built-in hedge against rising interest rates. Both strategies remained in positive territory during the latest round of rising rates, as shown above.

While credit risk remains in the corporate bond sector, we also note that debt levels for S&P 500 companies overall are less than half what they were at the turn of the century.^[2]

For some investors, taking on measured credit risk may be more appealing than remaining fully exposed to the threat of rising interest rates.

[1] Source: Bloomberg, data 2/27/26–5/15/26.

[2] Source: Bloomberg, data as of 3/31/26.