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What are bond funds, bonds in general; implying for the markets?
Catch, I'm wondering if the bond performance generally is not in response to the ever-increasing "good" news re new home starts and sales. If that area starts to get out of reasonable control due to artificially low interest rates, what else is bound to follow? And the Fed will maybe then need do what? Somehow I don't think that deflation is our immediate problem.
Is this a trick question? Reason I ask: Bonds don't necessarily have to imply anything for "the market" - however you are defining it. There will be repercussions for many markets if rates really jack-up (but that hasn't happened yet). Housing and housing-related companies (like Home Depot) would suffer as mortgages became more expensive. Dividend-paying equities (like utilities) would appear less attractive in comparison to higher yielding debt. The Dollar has been strengthening on expectation of higher U.S. interest rates ahead. Foreign currencies and equities or bonds denominated in these currencies would suffer in comparison to Dollar denominated assets for a period of time. (Most international stock and bond funds attempt to hedge away some - but not all - of this currency risk.) The real key with commodities, however, isn't the prevailing interest rates per se, but, rather, whether rates are more or less in line with inflation expectations. Thus, if rates rise to 5%, but inflation is projected to be 10%, than commodities would still do very well under that scenario.
Catch - I'd guess from the question that you are expecting the rising rate environment we seem to have entered to lead to a reversal of the current bull market in equities. It might. But, it's possible that it won't, at least any time soon. Just my 2 cents worth here.
In general, and in short words, the recent decline in price for most bond funds indicates, to me, that interest rates are rising. Since bond prices usualy move inverse of interest rates when bond prices fall then interest rates rise and when bond prices rise then interst rates fall. With this, I look for bond prices to contine to fall for existing bonds so that they remain competitive from an interest rate perspective with newly issued bonds. So, with this, bond prices move (upward or downward) based upon interest rate movements.
Also, I think hank wrote a good blurb addressing your question. So, Catch22 I felt you knew the answer to the question you asked of the board ... and so, with this ... What's the catch?
Have a great day ... and, perhaps in the not to distant future you will be able to devote more time to the board once the home improvement project is behind you. Hope so anyway.
Comments
Catch - I'd guess from the question that you are expecting the rising rate environment we seem to have entered to lead to a reversal of the current bull market in equities. It might. But, it's possible that it won't, at least any time soon. Just my 2 cents worth here.
A punch in the stomach to those that thought otherwise.
A splash of cold water for just about everybody else.
Part of the full-cycle for those that were invested in bonds in the '90s.
Here is my take.
In general, and in short words, the recent decline in price for most bond funds indicates, to me, that interest rates are rising. Since bond prices usualy move inverse of interest rates when bond prices fall then interest rates rise and when bond prices rise then interst rates fall. With this, I look for bond prices to contine to fall for existing bonds so that they remain competitive from an interest rate perspective with newly issued bonds. So, with this, bond prices move (upward or downward) based upon interest rate movements.
Also, I think hank wrote a good blurb addressing your question. So, Catch22 I felt you knew the answer to the question you asked of the board ... and so, with this ... What's the catch?
Have a great day ... and, perhaps in the not to distant future you will be able to devote more time to the board once the home improvement project is behind you. Hope so anyway.
My best,
Skeeter