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Subject:  Re: Investing in bond funds for trip down Date:  9/12/2007  12:33 PM
Author:  Lokicious Number:  21578 of 36619

Isn't this a good thing? The Teasury bond will pay out more with a higher interest rate, meaning a larger yeild. In addition, as markets decline, the bond fund price increaes, which is also good for the holder.

Sorry for needing the 101. But it still seems like bond funds are a good bet in a declining market. Even if foreigners hold a large portion of bonds, jumping into an international index fund certainly is going to help, as they are currently off their peaks and declining.

Just to reiterate a question: What do most here see as the optimal investment over the next few months to 1.5 years or so?

It does sound like you are confused. Take a look at the FAQs on how bond values and yields go in opposite directions and why the same change in yield in longer maturity bonds affects values more than on shorter maturities.

In this case, if yields go up on long bonds, because there are not enough buyers (lack of foreign investors), the tradable value of existing long bonds would decline. This would mean a loss of NAV in a long bond fund that would be significantly greater than the increase in yield on the fund. (The opposite happens if long bond yields go down: your NAV gain on a fund would outweigh the declining fund yield.)

As to what would be the best investment in the near future: pure guesswork. As Hedge and Wendy have noted, there are a lot of x factors out there. The basic advice of diversifying and making sure you have a solid emergency fund always applies.
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