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Matt's Market Insights

"The bull market in bonds is over."

You've probably heard that comment frequently over the past year or two, but are you clear on its implications? I know we have a lot of savvy subscribers; if that's you, please excuse this recap.

The price of a bond and the yield of that bond move inversely from one another. The easiest way to grasp this concept is to think about dividend paying stocks. When a stock pays a fixed dividend amount, the yield that dividend payment represents changes based on the current price of the stock. As the stock price climbs, the fixed dividend payment represents a smaller yield. Conversely, as the stock price falls, the fixed dividend payment represents a larger yield.

As a side note, this is why dividend paying stocks are said to have a "cushion" from severe price drops. As the stock price declines, the dividend yield becomes more ... Log in or subscribe to continue reading.

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