If inflation is growing and interest rates are decreasing, what will happen to bond prices?

January 14th, 2009 | by James |
Yardbird


This seems to be the current situation; usually interest rates go up with inflation (which would make bond prices go down), but now we have substantial inflation, and interest rates are heading south. Help! Are bonds safe?

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  1. 2 Responses to “If inflation is growing and interest rates are decreasing, what will happen to bond prices?”

  2. By dm_dragons on Jan 15, 2009 | Reply

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    Bonds are “safe” in that they are owed to you legally. You aren’t buying stock that might not be worth anything, you are actually giving a loan that must be paid back. As long as the company or government survives, you’ll get your “loan” back with a bond.

    As far as bonds value to you as for the yield - they tend to make money when the stock market drops. So you should have a portion of your portfolio in bonds to offset bad stock years.

  3. By engineer50 on Jan 18, 2009 | Reply

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    Traditionally, bond prices rise when interest rates fall. Creditworthiness is another matter - I would not invest in junk bonds right now.

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