San Diego, CA (PRWEB) June 01, 2014
LoanLove.com is a website that is dedicated to empowering homeowners with first class knowledge, access to valuable resources, and connections to top rated industry professionals. A recently featured article on the borrower advice website continues to provide the most up to date information, with a guide to the recent trends in interest rates and bonds.
This article titled, "Rising Interest Rates And Bonds(Who’s to Blame?)" helps to explain the current impact interest rates and bonds are having on each other, and especially what this means for both those who are looking for a better home loan rate, as well as those who have invested in bonds. The article says,
"Most investors understand that in general, bond prices move in the opposite direction of interest rates. When interest rates begin creeping upward, bond prices start to drop. Likewise, when interest rates are falling, bond prices go up. At least for previously issued bonds trading on the open market. Typically, what happens is a bond is issued in a certain dollar amount across a set number of years at the current interest rate—$10,000 for five years at 5 percent, for example. But when interest rates rise, the investor finds it impossible to sell the bond. After all, no one is going to want a bond that pays below market rates. This leads to a drop in the bond’s value while interest rates have increased."
The article explains the other factors leading to increase mortgage rates and decreasing bond prices, and ends by explaining what borrowers and investors can likely expect from the year ahead. It says, "Virtually any 2014 financial outlook you cared to browse predicted higher interest rates ahead. But so far, increases have been less than newsworthy. Nonetheless, most investors are still anticipating that average rates will rise over the next five to 10 years. The housing meltdown and economic downturn brought about historically low interest rates as part of the government’s attempts to heal the economy. The economic recovery has been steady, but slow, so that low interest rates remain even as the housing market has begun to gain strength."
Loan Love continues: "While it is expected that bonds will drop as interest rates rise, there is some evidence that investors need not necessarily begin selling their bonds. Historically, bonds have not done as poorly as expected during times of rising interest rates. Why? The key is likely the increasing yield the overall portfolio was able to earn. This was possible because as bonds matured, investors were able to take the proceeds and re-invest at higher interest rates. This strategy allows investors to more than cover the losses that came about because of higher rates."
For more information on this subject, click here to read the full article at LoanLove.com.