McInnis 03 said:
austinAG90 said:
Rates going up
And as rates go up, yields go down, yes?
Bonds. I boil down to 3 components. Rate risk, Credit risk and Duration.
IMO, in today's environment Credit risk is low as either the Fed will bail you out or a loan is attainable from a lending institution - money is available. Rate risk for the last few years has been on the verge of seeing/forcing an increase. If you recall Powell started to raise rates (during Trumps term) and got in a hurry and about collapsed the market around his ears. This current Administration, Congress and the Fed are trying to drive inflation that has been benign for a long long time. If you believe rates are to rise soon, see paragraph below.
Duration, that's the average maturing period of the bonds or combination of bonds in an offering. Short duration bonds are generally 1.5 years and lower. Medium duration bonds 2 to 4 years. Long duration is 5 or more years. Definitions of Short, Med and Long can vary based on opinion and your mileage may vary.
If you are invested in a Short duration bond of 1.5 years and the Fed increases interest rates 1%, your bond will decrease in value 1.5%.
If you are invested in a Long duration bond of 7.0 years and the Fed increases interest rates 1%, your bond will decrease in value 7%.
Works in reverse if interest rates are decreasing.
It's hard to imagine rates going lower in this environment; therefore, if you're in a flight to quality due to the threat of rising rates, Short Duration Bonds would be your focus.
Hope this helps someone.