Story Highlights

The 25 largest bond ETFs have about $139 billion in assets Only one bond of the 25 largest funds rose: ProShares UltraShort 20+ Year Treasury Funds with the shortest maturities fared best

Stocks aren’t the only investments that have fallen because of rising interest rates: Your bond funds have gotten clobbered, too.

Interest rates have been rising since May 2, when the yield on the bellwether 10-year Treasury note hit 1.63%. The 10-year T-note yield hit 2.23% Wednesday — still low by historical standards, but a sharp rise nonetheless. And bond prices fall when interest rates rise.

The 25 largest bond ETFs — bond funds that trade on the stock exchanges — fell an average 3.2% since May 2, according to Capital IQ. The 25 largest bond funds of all types fell an average 2.4%.

PIMCO Total Return, the largest bond fund of any type, fell 3.1%, according to Lipper, which tracks the funds. The largest bond ETF, iShares iBoxx Investment Grade Corporate Bond (LQD), invests in long-term IOUs issued by companies with solid credit ratings. The fund tumbled 4.9%.

Hardest hit category: Emerging markets bond funds, which invest in IOUs issued by the governments of countries that haven’t yet hit first-world status. The average fund that invests in U.S. dollar-denominated emerging markets bonds fell 8.13%, according to Lipper.

Funds that invest in Treasury Inflation-Protected Securities, or TIPs, were also hard hit. For example, the iShares Barclays TIPS Bond (TIP), invests in Treasury Inflation-Protected Securities, issued by the U.S. government. It’s down 5.6%, in part because investors overpaid for protection against very little inflation. The consumer price index, the government’s main measure of inflation, has risen just 1.1% the past 12 months, according to the Bureau of Labor Statistics.

High-yield bond funds, long an investor favorite in this low-yield world, weren’t hit as hard as government bond funds. High-yield bonds are a Wall Street euphemism for low-quality junk bonds. Funds that looked to turn trash to treasure lost an average 2.3% since May 2, according to Lipper.

IShares iBoxx High Yield Corporate Bond invests in low-quality, high-yielding corporate IOUs. It’s down 3.92%, in part because its relatively high yield — 6.4% the past 12 months — cushions some of the downturn.

Bond risk increases as maturities rise, and long-term bond funds got severely punished. For example, iShares Barclays 20+ Year Treasury bond ETF fell 7.8%; Vanguard Short-term Corporate Bond Index ETF fell 1%.

Why do bonds fall in price when interest rates rise? A bond is a long-term, interest-paying IOU. It pays a fixed rate of income. When newly issued bonds arrive with higher interest rates, you can’t go back to the issuer and demand a higher rate.

Instead, you have to cut the price of the bond, which raises its yield — the interest payment divided by its price. The more rates rise, the steeper the discount traders will demand for your bond.

If you hold your bond to maturity, you’ll get its full face value, plus interest. Mutual funds, however, have to price their holdings every day. While a fund may well hold a bond to maturity, the fund’s share price will fall every day as interest rates rise.

Should the economy continue to improve, it’s likely that interest rates will continue to creep upwards. Investors will get their next glimpse into the Federal Reserve’s thinking about rates and the economy on Tuesday, when the Fed releases the minutes of its most recent Open Market Committee meeting.