Inflation is the main reason behind the increase of interest rates by the Federal Reserve (the “Fed”).
Pending the Fed meeting next September, we expect three additional increases of 0.75% each.
The bond market is affected by rising interest rates. Today, bond prices are higher than stock prices for four reasons:
- Higher interest rates
- Withdrawal of liquidity from the financial and banking system
- Absence of market makers since banks affected in the 2008 correction can no longer accommodate a large volume of bonds
- Revised credit rating of bonds with a looming US recession.
Investors are buying bonds to achieve returns amid low interest rates. They should, however, avoid concentrating their investments in bonds alone and borrowing to buy these bonds.
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