When bond yields go up, bond prices go down. It’s a time-tested principle, but it’s also one we haven’t experienced much since the pandemic began. At least, not until the past several weeks.
You could feel the effect of rising yields in a near-term drop in price for your existing bonds. And the first time you might see that change is when your January account statement arrives.
But it’s important to remember that rising yields can also create new opportunities. New bonds can be purchased with higher yields, and money that is scheduled to be reinvested can also take advantage of the higher yields. That could lead to more income being generated on a regular basis.
Interest rates have been low in recent years, but the Fed has said it’s prepared to raise short-term rates in 2022 to help manage inflation. So I’m anticipating some changes in the months ahead.
Bonds can be confusing, so please reach out if you want a quick refresher.
If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity, an investor will receive the interest payments due plus your original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk