A Sweet Spot for Bond Investors

By SNW Asset Management via Iris.xyz

There has been no shortage of news articles on the risks to bond investors following the election driven selloff in the fourth quarter of last year. Reflation, or the concept of an economic growth driven increase in the level of inflation, has consistently been at the top of the list. And rightly so.

Bond investors receive a set level of interest payments over the life of a bond. Inflation has the potential to make those future payments worth less. To compensate for the expectation of, or for actual higher levels of inflation, investors demand higher long-term interest rates.

This increasing of interest rates to combat against inflation is what triggers a decline in bond prices like the one we saw in Q4. The key point here is that the market controls long-term interest rates.

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