Rising Interest Rates And Bonds – LoanLove.com Explains The Factors Behind The Recent Trends

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A new guide from Loan Love takes a look at the relationship between bonds and interest rates and helps borrowers to understand why rates are constantly fluctuating.

There are many different things that potential borrowers will have to be aware of if they wish to find the best home loan for their needs, and one of the most important details that comes into play when it comes to finding an affordable home loan is the mortgage interest rate available to them. However, interest rates are constantly changing, for better or for worse, and it can help borrowers to judge when the best time to obtain a home loan would be if they understand a little more about what causes rising interest rates and bonds. LoanLove.com helps to explain some of the major factors that cause movement in bonds and mortgage rates and can give potential borrowers a clearer picture of the current mortgage rate trends.

The new Loan Love guide, which is titled “Rising Interest Rates And Bonds (Who’s To Blame?)” starts off by saying, “Investors often turn to bonds to add some stability to their portfolios, hoping to balance some of the volatility experienced with stocks. But are bonds really the stable anchors they are made out to be? Rising interest rates and bonds with declining values illustrate the unique relationship that exists between interest rates and bonds, but more importantly, it shows just how vulnerable bonds are to economic changes that can impact their value. It is no secret the Federal Reserve will be slowing its bond purchases while raising interest rates, with the end result expected to be lower prices for bonds. Often, investors see this as a sign to dump their bonds. But that isn’t necessarily the only choice.”

Loan Love goes on to explain that there are a variety of economic factors that cause fluctuations in interest rates. For example, the article notes that both short-term and long-term rates are impacted by things such as inflation, the strength of the dollar, and the overall pace of economic growth. In fact, the Federal Reserve has been known to increase interest rates in an attempt to slow the pace of inflation and fast economic growth. The guide to rising interest rates and bonds goes on to explain how many investors see rising rates as a threat to bonds and also gives and explanation of the relationship between interest rates and bond prices.

Lastly the article talks about where rates are expected to move in the near future. While rates have not yet increased as much as was predicted earlier this year, most investors are expecting a rise in average rates over the next five to ten years. Loan Love says,

“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. 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.

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Kevin Blue
Loan Love
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