Are rising interest rates a curse or a blessing?
High Inflation and Interest Rates
Our goal in today’s podcast is to add clarity of the impact of rising rates for bond investors.
2022 has been a challenging year for Canadian investors; inflation is higher, interest rates have been going up, bonds are down, and stocks have been volatile. Typically, bonds have sheltered investors in periods of uncertainty. This hasn’t been the case this year.
Bonds play an important role in the investing world. They provide income, stability, and diversification to your portfolio. Bond prices are constantly moving according to current conditions and they typically have an inverse relationship with interest rates – when interest rates go up, bonds prices go down and when interest rates go down, bond prices go up.
When looking at year-to-date bond returns, rising yields and decreasing bond prices may feel like a curse. In today’s episode, Keith & Lawrence discuss why rising yields may in fact be a blessing for bond investors – and/or investor’s bond allocation of diversified portfolios.
Why rising yields are a blessing for most bond investors
- Why this has been a particularly challenging year-to-date period for bond investors (2:15)
- How much are the average bond holdings down? (3:19)
- What is driving the negative returns (4:40)
- Understanding “the gut punch” that bond investors have received from rising yields (7:46)
- The positive after-effects of higher yields (9:20)
- Two scenario analysis:
- Scenario 1: The gut punch followed by higher yields vs
- Scenario 2: The no gut punch with lower yields (10:25)
- What Canadian investors need to keep in mind about bond duration (17:06)
- Higher interest rates and implications for borrowers (20:47)
- Our takeaways on the rising interest rates and the implications to investors (22:19)
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