At what point in the dynamics of the market place and the interest structure will bonds increase in value. I moved my retirement portfolio over to bonds a while ago to protect my dollar value. I realize the best thing to do is to pull out completely, but I may leave some in just to see what happens. It seems as if when the stock market goes down, so does the price of bonds (at least the value of my holdings goes down).

-- thomas saul (thomas.saul@yale.edu), August 10, 1999

Answers

You can see below the trend of the bond value decreasing as the stock vale decreased (hope the visual display of this information comes out ok)

-- thomas saul (thomas.saul@yale.edu), August 10, 1999.

You can see below the trend of the bond value decreasing as the stock vale decreased (hope the visual display of this information comes out ok)CREF 08/09/1999 08/06/1999 08/05/1999 08/04/1999 08/03/1999 Stock $179.20 $179.67 $181.25 $180.95 $182.92 Money Market $18.87 $18.86 $18.86 $18.86 $18.86 Social Choice $88.76 $88.97 $89.72 $89.33 $90.05 Bond Market $50.58 $50.81 $51.13 $50.98 $50.97

-- thomas saul (thomas.saul@yale.edu), August 10, 1999.

the price of bonds will __not___go up in this type of market. bonds have a rating and a coupon rate when issued at par [100]. if interest rates rise the price of the bond has to go down to equal that rate. say you have an "a" rated bond @par[100] @5% interest [coupon] and the interest rate in the market goes to 6.5%. the price of the bond has to go down so its 5% coupon will equal 6.5% in interest. if it didnt no one would want to buy it. they would look for a bond with 6.5%.. i have been in the junk bonds for 30 yrs and have about 250 seperate bonds. but i havent bought more than 3 bonds in the last 2 yrs. you dont buy long term when the interest rates are low. i still have bonds that are paying 15% and have for years. watch your step buying at this level.

-- bob (rcrozier@koyote.com), August 10, 1999.

Thomas, The value of bonds is tied to the level of interest rates. Interest rates go up, the value goes down and vice-versa. You still earn the interest that the bonds pay, but the value of the portfolio of bonds can and will fluctuate with interest rates. eg. the govt issues a 30 year bond, it yields 5% and is priced at $1000. A month from now, it issues another 30 year bond an rates are now 5.25% priced at $1000. Nobody will pay you $1000 for you bond if they can buy a new one yielding 5.25%, so the resale value of your bond is now less. If you hold it till maturity, you still get the $1,000 plus all the interest. In a bond fund however, share prices will fluctuate. Good luck.

-- Bill (bill@stashthecash.com), August 10, 1999.

Thomas,

FWIW, short term T bills, 12 months or less, which have lower interest rates than bonds, are less likely to depreciate than long term bonds. Usually, the longer the term, the more depreciation when interest rates subsequently go up.

Jerry

-- Jerry B (skeptic76@erols.com), August 10, 1999.