If inflation is growing and interest rates are decreasing, what will happen to bond prices?

Question by Yardbird: If inflation is growing and interest rates are decreasing, what will happen to bond prices?
This seems to be the current situation; usually interest rates go up with inflation (which would make bond prices go down), but now we have substantial inflation, and interest rates are heading south. Help! Are bonds safe?

Best answer:

Answer by dm_dragons
Bonds are “safe” in that they are owed to you legally. You aren’t buying stock that might not be worth anything, you are actually giving a loan that must be paid back. As long as the company or government survives, you’ll get your “loan” back with a bond.

As far as bonds value to you as for the yield – they tend to make money when the stock market drops. So you should have a portion of your portfolio in bonds to offset bad stock years.

What do you think? Answer below!

One comment

  1. engineer50 says:

    Traditionally, bond prices rise when interest rates fall. Creditworthiness is another matter – I would not invest in junk bonds right now.

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