3 ms·
Why would bonds and cash be wrecked? You even say that bonds would be a good deal
by EGreg 4y ago
Why would bonds and cash be wrecked?
You even say that bonds would be a good deal
- 55555 4y agoCash would be wrecked due to inflation. However it should be less wrecked than other asset classes in the short term. I know nothing about bonds so I also hope they reply.
- chmod600 4y agoI think the idea is that bonds at higher rates are a better alternative ("better deal") compared to cashflow from an asset. But if you actually buy that bond, and the rates keep going up, then new bonds will be an even better deal than the bond that you bought, and so to sell it you'd need to sell at a discount ("wrecked"). I feel like this misses a sense of scale. Sure, everyone loses, but some choices must be superior to others in a rising-rates environment.
- ironSkillet 4y agoPreviously purchased bonds will decline in relative value. E.g. say you bought a 10 year corporate bond a couple years ago, say at 2% interest. Newer bonds will be issued at a much higher yield to be attractive in a higher fed rate/inflation environment, making all these old bonds lose value in comparison.