I realize this question has been asked a bunch of different ways over the years, but I was hoping to get specific opinions on how a Fed interest rate increases will affect long term bond ETFs (i.e.- TLT or BLV).
This is one of the better / more specific answers that I found on this site. According thereto, a 0.25% Fed increase will decrease long term bond ETFs (of an average holding period of 25 years) by 6.25%, which seems crazy. Having a hard time believing that, I dug a little further and found that in 2005 the Fed rates increased rates about 2% (http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html) but yet TLT went up almost 4% that year. A lot to 2005 I am currently overlooking, but TLT didn't drop like a rock as how that theory would have predicted.
It seems like the popular consensus is to stay far away from long term bonds funds when the Fed finally increases interest rates, but if you look at TLT in the mid 2000's (between crashes), it seems like its price wasn't negatively affected by the 4% of Fed interest rate increases during that period.
Granted, one of the cardinal rules of the market is that the past performance does not predict future performance. Today's market differs from the market of the 2000s, but given that long term bond funds did not underperform the last instance of Fed rate increases (and in fact TLT performed much better then short-term bond ETFs that some think you should flock to today), why are people so wary of long-term bond funds before the upcoming Fed interest rate increase?
[Note - please feel free to correct any inaccuracies in any of this]