TITLE

Now Is Always the Best Time to Buy Bonds

AUTHOR(S)
Athavale, Manoj V.; Zivney, Terry L.
PUB. DATE
August 2005
SOURCE
Journal of Financial Planning;Aug2005, Vol. 18 Issue 9, p56
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Bonds are part of a diversified market portfolio and should be held to some degree by all investors. But many investors are hesitant to buy bonds when interest rates are low, fearing that when rates rise they will forgo future income or face capital losses. The pure expectations theory states that the current yield curve is an unbiased predictor of future interest rates. In this case, we show that tine total return from buying bonds now exactly equals the return expected from buying bonds later. The liquidity premium theory states that tine current yield curve includes not just expectations of future interest but also an additional return called the liquidity premium, in this case, we show that postponing investment in bonds reduces total return because this investor falls to receive the available liquidity premium. This paper elucidates that there is no penalty for investing in bonds even In a rising-rate environment.
ACCESSION #
17857446

 

Related Articles

  • FIXED INCOME. Sibillin, Anthony // BRW;1/14/2010, Vol. 32 Issue 1, p24 

    The article focuses on how the returns of Australian bond funds depend on the interest rates. It states that investing in individual funds offers double return as it doubles the risk of the investment. It also mentions that retail investors can choose on how to invest, while direct buyers are...

  • Mutual Reassurance. Pachetti, Nick // Money;Oct2004, Vol. 33 Issue 10, p71 

    The article profiles three funds that prosper during times of rising interest rates. Given today's uneasy business climate, investors would be wise to stick with companies that prosper during times of rising interest rates, return some of their profits to shareholders as dividends or dominate...

  • Sound investment decisions yield hefty profits. Corbin, David; Villegas, Melissa // Fort Worth Business Press;2/21/2005, Vol. 18 Issue 8, p26 

    Explains a strategy to yield profits from fixed income securities considering a low-rates environment. Impact of budget and trade deficit on interest rates; Implication of increase in interest rate for investors; Main problem with buying step-ups, bonds that pay a high current rate of interest.

  • Don't wait to buy bonds, researchers advise.  // Westchester County Business Journal;9/5/2005, Vol. 44 Issue 36, p28 

    The article focuses on the advice for investors to acquire bonds in the U.S. Experts said that buying bonds immediately makes longer maturity bonds that earn higher interest rates. There are two concepts that further justify direct buying of bonds. According to the liquidity-premium theory,...

  • Sinking fund prepurchases and the designation option. Kalotay, Andrew; Tuckman, Bruce // FM: The Journal of the Financial Management Association;Winter92, Vol. 21 Issue 4, p14 

    The corporate borrower may, from time to time, choose to purchase its outstanding bonds in the open market. Under Security Exchange Commission regulations, the borrower may not resell these bonds, but must retire them in a manner governed by the relevant indenture. The provisions of a typical...

  • Bonding with Bond Funds. Varadarajan, Nitya // Business Today;3/23/2008, Vol. 17 Issue 6, p148 

    The article offers suggestions regarding financial investment. It is suggested that a person buying bonds with a maturity of 10 or more years should be reasonably sure that the interest rate will decline, because they are prone to market risk. According to Rajiv Shastri, the head of Lotus India...

  • Even with low interest rates, you can invest for income. Beithon, Tim // Inside Tucson Business;4/27/2012, Vol. 21 Issue 48, p18 

    The article discusses the aspects for investors to consider to invest for income even with low interest rates. It emphasizes the need to build a ladder of bonds of varying maturities. It stresses that dividend-paying stocks are found to be less volatile compared to non-dividend paying stocks. It...

  • Deals From New Jersey, South Carolina Stand Out in Lean Market. Albano, Christine // Bond Buyer;8/30/2004, Vol. 349 Issue 31958, p6 

    Provides an update on bond deals in the United States. Interest rate hikes by the Federal Reserve Board; Sale of debt offerings; Status of the general market; Ways to meet the demands of investors; Value in the secondary market; Opportunities in the market.

  • AN ANALYTICAL MODEL OF BOND RISK DIFFERENTIALS. Bierman Jr., Harold; Hass, Jerome E. // Journal of Financial & Quantitative Analysis;Dec75, Vol. 10 Issue 5, p757 

    The article focuses on a model that evaluates the risk associated with bond default, particularly how the risk-adjusted equilibrium interest rate is determined and what factors can impact change. A hypothetical situation is presented in which the probability distribution of pre-tax interest...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics