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Does Holding Bonds to Maturity Eliminate Interest Rate Risk?

By Matthew Kerkhoff

 

With interest rates having recently hit unprecedentedly low levels, and the Fed getting ready to raise rates for the first time since 2006, many investors are convinced that yields have nowhere to go but up. If that’s the case, then it means bond prices will fall, and bond investors may feel a stinging sensation as they watch the value of their bonds erode.

 

I’ll be the first to admit that it’s difficult to predict where interest rates are heading, though there is a strong tendency for longer-term bonds to move in relation to inflation expectations. With a muted inflation outlook at this point, my best guess is that longer-term yields will remain low for quite some time, at least until we see the “whites of inflation’s eyes.”

 

By the way, if you think you know where rates are headed, or believe that economists know, you may want to dump that false ... Log in or subscribe to continue reading.


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