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Author: TravisJ2002 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35362  
Subject: Why should bond prices drop? Date: 1/9/2005 7:09 PM
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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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