Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
Bonds
I do not feel that now is a good time to invest in long-term bonds. The reason is this – the value of long-term bonds decreases as interest rates increase. As this looks like an increasing interest rate environment, long-term bonds look like they would come with an opportunity cost. Short-term bonds would be a better investment in this environment..
There is a Federal Reserve rate increase expected this week, but that has already been priced into the bond market (Robb, 2017). The idea of the Fed increase is that it will place a constraint on economic growth, in which case the current economic expansion will continue "at a steady pace without overheating" (Robb, 2017). Indeed, the Fed has already cautioned that if the market does not respond with slowing conditions that "All else equal, an easing of financial conditions may warrant a somewhat steeper policy rate path." (Robb, 2017). Thus, the current condition is that rates are going to increase, but they will likely have to increase again, and perhaps at a faster rate than is currently built into long-term bond prices.
There is, however, the question of whether or not a new tax plan will be passed, and given how poorly conceived it apparently is, whether that would create an economic boom as its backers hope or whether it would create negative economic conditions as all rational analysis indicates. That would probably lead more towards a collapse in economic growth, which would mean that rates are reduced. The impact of changes to the tax code would take some time to materialize, however, meaning that even if one believed current fiscal policy is going to harm the economy, that the time to buy long-term bonds is probably further down the road when rates are higher, and those higher rates can be locked in for the long-run.
Overall, the analysis that is available now, in absence of speculation about potential fiscal policy changes and their impacts, says that we are currently in an increasing rate environment, which is a bad time to buy long-term bonds.
References
Hayes, D. (2017). Bond basics tutorial. Investopedia. Retrieved December 11, 2017 from https://www.investopedia.com/university/bonds/bonds3.asp
Robb, G. (2017). Here's why the Fed will hike interest rates on Wednesday. Marketwatch. Retrieved December 11, 2017 from https://www.marketwatch.com/story/heres-why-the-fed-will-hike-interest-rates-2017-12-11
Treasury Securities and Business Risks What is meant by "risk-free?" Risks are unplanned occurrences that affect the normal occurrences within a business or any other project. A risk-free scenario is anything that occurs without the possible occurrences of risks. Therefore, in an economic undertaking, risks are occurrences that occur contrary to the planned business or economic programs (Garbade, 2012). Thus, a risk-free status refers to a business occurrence where the established safety
Commodity Investing Are there potential risk reduction and diversification opportunities in adding commodities to a Norwegian investor's asset portfolio? Recent global economic turmoil has inspired investors all over the globe to look for ways to protect their portfolios and to continue to make them grow despite a weak economy. Investments in commodities have been suggested as a solid hedge against future turmoil in the markets. The question is whether this is good
profit through investing on Stock Market Generally, all over the world financial markets exemplify a state of intricate and inscrutable situation. These marketplaces are of immense significance in the western nations, where the constituents employ their expertise to invest and generate profit whilst formulating a pool of funds, statistics, derivatives, shares and calculation intricacy. These constituents or elements are those investment maestros who are the whole and sole performers of
I do not feel that now is a good time to invest in long-term bonds. The reason is this – the value of long-term bonds decreases as interest rates increase. As this looks like an increasing interest rate environment, long-term bonds look like they would come with an opportunity cost. Short-term bonds would be a better investment in this environment.. There is a Federal Reserve rate increase expected this week, but
functions of financial markets and discusses why a dollar tomorrow cannot be worth less than a dollar the day after tomorrow. Furthermore, the paper explains the cash flows associated with a bond to the investor. And discusses the term "price-earnings (P/E) ratio." In addition, the paper discusses the certainty equivalent approach to estimating the NPA of A project and discusses the problems associated with capital investment process. Lastly, the
Society Feels About Animals As a first order primate, humans have a natural affinity with animals of all types that has contributed to their mutual relationships throughout history. In fact, animals of different types have been since the time of the ancient Greeks to improve the emotional and functional status of humans (Mccauley, 2006, p. 358). Animal-assisted therapy (AAT) has grown in popularity in recent years based on its proven