As Fed raises rates, popular bond index funds get pinched

NEW YORK (AP) — For holders of bond funds, the Federal Reserve is providing a reminder that even those buttoned-down, conservative investments carry some risk.

Bond prices fall as interest rates rise, and the Fed raised its benchmark interest rate by another quarter of a percentage point Wednesday. The central bank also said it may raise rates two more times this year, a faster pace than it indicated a few months ago.

With interest rates on the rise, the prices of bonds siting in funds' portfolios could drop because they suddenly look less attractive than newly issued bonds. Even if the fund doesn't sell the bond, and thereby avoids locking in the paper loss, its share price will drop. The largest bond mutual fund dipped 0.