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Subject:  Why should bond prices drop? Date:  1/9/2005  7:09 PM
Author:  TravisJ2002 Number:  11575 of 36218

I'm relatively new to understanding bonds, but I understand that as rates go up, prices for outstanding bonds should go down, in general. It seems almost assured that as the fed raises interest rates, government bonds should go down in price, in general.

However, given that we expect the fed to raise interest rates, and that the fed is doing it in a fairly predictable manner, shouldn't the bond price remain the same? One usually true principle in stocks is that if everyone knows the price will go down (or up) tomorrow, then it will go down (or up) today. Why shouldn't that be true with bonds? Wouldn't reasonably expected interest rate increases already be priced into bonds?

Or is there something I'm missing.
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