Preface:  I use a 40% bond allocation for refuge from equities and don't rely on income at this time.  I have a 50% split between TIPS and intermed. term treasuries.  Life in the bond market has been good to me so far this year, but I see a "storm on the horizen".

Question: if interest rates start rising, would the treasury bond funds (which includes TIPS) be subject to declining values moreso than any other segment of the bond market?

Here's a scenario...say the fed has an meeting later in 2008 and the street expects an increase in interest rates.  Can it be assumed that this would be a negetive event for the bond market in general, and by this I mean is there a type of bond fund that may be better insulated from a rise in interest rates?

Last question:  If a rise in interest rates is the expected outcome from a fed. meeting, would a move into a money market fund be silly? 

As always, thank you for your thoughts, ideas and criticism.  I find it all useful.

When you ask about "a type of bond fund that may be better insulated from a rise in interest rates", there is a bond fund which shorts the 10-year Treasury, Rydex Juno, RYJUX (I own some).  Of course, this is a direct short.

Also, there are foreign and emerging market bond funds; currency hedged, partially hedged, and unhedged, per your desire.  These funds react less to US Treasury yields than do US bond funds.

Or you could consider a fully diversified worldwide bond fund like Loomis Sayles Bond Fund, LSBDX (I own some). 

Jeff

do you use Vanguard VIPSX or do you use an ETF ...and which one?

Burt 

Jeff..

I think your questions are good ones because the portfolio consequences of being the wrong way vs. the Fed's next tightening could be severe.  That said, it appears you expect that tightening cycle may begin a good deal earlier than I do.  Nonetheless:

1. I think at the first whiff of possible Fed tightening, the curve will flatten dramatically while the long end moves up moderately.  That's when I will dive into (per your query) money market funds, waiting patiently for opportunities to deploy cash in higher yielding longer instuments.

2. When Fed begins to tighten, I'll get out of my inflation protected component as well...anticipating that TIPs-ish assets will suffer not only from the general rising rate environment but also from anticipation of the rate-hike program's ultimate success in reducing inflation.

3. All that said - and while I commend your attention to appropriate strategies for future Fed tightenings - I think a more immediate problem is how those of us with high fixed income portfolio allocations should deal with/optimize what is likely to be a protracted period of stable and slightly lower short term (Fed-managed) rates.  Delevering the US/global financial structure will IMO take at least a couple years, and any Fed rate increases undertaken before deleveraging is complete would be both devastating and short-lived.

Dick

I very much appreciate your comments - especially regarding your opinion of the timing.  I was fortunate enough to be in long bonds at a time when the rates started decreasing - the effect on rising bond prices was remarkable.  I know the reverse would be just as spectacular, so I have been more or less sitting on the sidelines with cash (MM), not knowing where to go that will be safe.  I have lately been looking at PREMX, MERKX, LSGLX, & VIPSX.  I already had LSBRX & FSICX before the fall started & couldn't make myself part with them.

Others have talked about a long (bathtub-shaped) recovery - or a very long "trading-range" recovery.... that would seem to match with your projection of protracted "Fed-managed" rates.  Under those conditions, I would think that well-managed bond funds should do well for as long as those conditions last.