Wall Street analysts have been arguing that bonds are slated to rise for a while. Bonds do rise for a number of reasons, with varying results. Bonds can rise due to federal reserve initiatives. However. such initiatives are generally low impact and should not be of great concern to bond investors.
Analysts have devised several scenarios to prognosticate how investors could be impacted by bond rates. Aggregate bonds were used for the analytical data, being of a sort of template nature for a variety of possible government securities. Even the worst case scenario devised did not result in a washout, merely a somewhat disappointing but not completely worthless yield. The conclusion is that rate changes are not likely to be a huge fear factor for bond investors.
- Analysts have long been suggesting that those with investments in fixed, long-term securities are likely to see some rate increases.
- Rate increases that come about due to Federal Reserve actions are generally not of a high impact and should not be worrisome to investors.
- Even in devising the worse case scenario for bond investors, the yield that investors would make would be at worse small, but not disastrous.
“We have modeled several scenarios for future Aggregate bond portfolio returns, given different paths of rising interest rates. In each chart below, the tan bars represent the hypothetical future yield of an Aggregate bond portfolio, and the blue line represents the growth of $100 invested in the portfolio over the next ten years. Yields are plotted on the right axis, and value of the initial $100 is plotted on the left.”
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