« Emerging Markets | Main | Age & Risk Tolerance »

Mar13
Inflation Rates and Bond Prices
Lynn observes that with inflation running at 3% that bond yields appear to be low.

In March of 2006, headline or nominal inflation is running over 4.0% year over year.  The 10 year US Treasury has a yield of about 4.80%.  So, you are locking in a return of 0.8% for 10 years.  I agree with Lynn that this seems low.

When yields go up, the price of bonds go down.  So, when you feel that interest rates are more likely to go up than down, bonds are a less attractive place to invest.  You can minimize the risk of loss in your bond portfolio by shortening the maturity of the bonds you hold or by raising the coupon level of the bonds you hold.  Both actions reduce the sensitivity of bonds to changes in interest rates.

If you are sure inflation and interest rates are going up, many investors find cash an attractive place to invest.  By keeping maturities short, one or two months, you can reinvest your capital at increasingly better yields.

1 Comments/Trackbacks




You state that many investors find cash to be an attractive place to invest in times of escalating interest rates and inflation. By "cash" are you referring to "near-cash money-market securities," vs. bonds (or stocks)? I'm sure you would agree that in periods of inflation and escalating interest rates, cash itself is not only a non-earning asset, it is also a wasting asset.

submit a trackback

TrackBack URL for this entry:

post a comment

Name, Email Address, and URL are not required fields.





Comment Preview

« Emerging Markets | Main | Age & Risk Tolerance »

Advertise

Related Resources

sponsored ads



Incredible Hall of Acclaim.

subscribe


Prefer Email?
Subscribe below-

Enter your Email:


Powered by FeedBlitz What's this?

Current News

Support This Blog

business social media

Use these fast growing business social media sites to promote your business, feature your products, spotlight your business leaders, create links, and drive traffic back to your company site, all for free!

BIZZlogos - Add your logo - free link to your site
BIZZphotos - Add photos of your products and people
BIZZprofiles - Submit your profile and build your online visibility
BIZZspotlight - Spotlight your business with free links
BIZZvideos - Videos about businesses, products and business people.
BIZZbites - "Digg" for Business - Submit your articles and posts

know more media network

View Network Map

Network Feed List (OPML)

Know More Media Network
Feed


we support unitus

PRWeb

Influencer



GrowYourFunds is a member of the Know More Media network of business related blogs.

Here are some current headlines from some of our business publications:

ProductivityGoal

CallCenterScript

AdHurl

TheBizofKnowledge

LandingTheDeal

CustomersAreAlways

HealthCareVox

WebMetricsGuru

TheInsurancePolicy

MarketingBlurb