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Question
Hello,
I needed this clarification of when might we want to invest in bonds with high interest rates – long term or short term
The answer doesn't really depend on how high the interest rates are, it more what is expected.
If interest rates are expected to be stable to lower, you want to invest long term to preserve the higher rate. That keeps you from having to reinvest at lower rates.
However, if rates are expected to increase (inflation becomes a problem), you want to stay short so you can invest at higher rates when they start to climb.
You don't want to have long term bonds paying 4 if rates go up to 8.
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Doug Ingram
Expertise
Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I write the Bond Market Review on behalf of Commerce Street Capital Management.
Experience
Trading and designing portfolio strategies since 1980.
Education/Credentials
Physics and Differential Mathematics
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