Now Is Always the Best Time to Buy Bonds

Athavale, Manoj V.; Zivney, Terry L.
August 2005
Journal of Financial Planning;Aug2005, Vol. 18 Issue 9, p56
Academic Journal
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.


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