UnThreaded | Threaded | Whole Thread (13) | Ignore Thread Prev | Next
Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: What would you do? Date: 8/24/2001 3:47 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
Seems to me the question you pose is a classic bond investors dilimma. When interest rates fall, you have paper profits and at times that means the profits you have made to this point give you far more than you expected to this point, but if you hold the bond from here to maturity, in the latter portion you will get lower effective yield, maybe much lower.

Similarly, if you sell the bond now and reinvest in new bonds, you will give back those profits whenever interest rates eventually rise.

Assuming you can sell them at reasonable broker fees, you can consider selling them. To avoid the rising interest rate exposure, I would think the logical move would be to put the money in money markets (or interest rate insensitive investments like what ?? real estate?), hold until interest rates rise, and then buy back in. The lower rates of return of money markets give you a good idea how long you can hold this position. I would bet in the present economy, probably not long enough.

The larger question is how does a fixed income investor make money when interest rates are rising? Can you invest in interest rate futures? Can you sell bonds short? What else is out there?
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (13) | Ignore Thread Prev | Next

Announcements

Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement