In this Investment Insight, we explore:
- How inflation, rising interest rates, and bond prices intersect.
- The value of active management when investing with bonds.
- Strategies for investing when rates are rising.
After a decade-long slide in interest rates, bond investors may be facing a period of sustained rate hikes, prompting worries about the implications for their fixed income investments. While rising rates present unique challenges to bond investors, there are strategies for adapting to this evolving vista.
Interest rates have been at historical lows since the Federal Reserve (“the Fed”) implemented an unprecedented policy of monetary easing in response to the credit crisis that began to unfold in 2008. A decade later, as the Fed has begun to move toward monetary policy normalization, investors may now be confronting an unfamiliar economic and investment landscape marked by rising interest rates and rekindled inflation.
Interest rates rarely change direction for a single reason, and the path they travel isn’t always a straight and predictable one. Still, there are several key influences that affect the direction of interest rates, which warrant close monitoring, including, Federal Reserve policy, economic conditions, inflation, fiscal policy, and the bond market.
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