Bonds have long been a staple in American investment portfolios, primarily known for providing fixed income. These bonds can be issued by various entities including the federal government, state governments, corporations, and others.
In this video, Ed Butowsky will explain how bonds are affected by interest rates. The topic of interest rates has been frequently mentioned in news outlets over the past two years due to significant fluctuations.
Tune into today’s video to deepen your understanding of this important financial relationship!
Summary:
- The direction of interest rates plays a big role in investment management, including bonds.
- As interest rates lower, bonds become more expensive. As interest rates increase, prices go lower.
- The longer the duration on a bond, the more sensitive our price fluctuations will be.
- If you estimate that interest rates will go down in the future, it’s important to understand your yield to maturity (YTM). Lower future interest rates can increase the YTM of bonds you purchase now. However, it’s also important to note that anticipating interest rate movements is highly speculative and requires careful analysis of multiple economic factors.
The interplay between bonds and interest rates is a critical aspect of financial markets.
Interest rates directly influence the value of bonds; as rates rise, bond prices typically fall, and vice versa.
This inverse relationship is crucial for investors to understand, as it affects both the current market value of their bond investments and the overall yield they can expect to receive.
By carefully monitoring interest rate trends and economic indicators, investors can make more informed decisions, potentially maximizing their returns while managing risks associated with bond investments.
Therefore, a strong grasp of how interest rates affect bond markets is essential for anyone looking to include bonds in their investment portfolio. Ed Butowsky commented on this more over on his personal site.
Thank you for reading this week’s “Making Sense with Ed Butowsky” article. To view the rest of Ed’s articles, you can click here or you can also check out Ed’s personal website to learn more about him.
For more information, email Jordan McFarland at jordan@chapwoodinvestments.com.
Disclosure: Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. Chapwood Investments, LLC is a SEC Registered Investment Advisory Firm. No mention of a particular security, index, derivative or other instruments in this material constitutes an opinion on suitability of any security. The information and data in this material were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this material. The guests appearing in material do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.