In other words, bondholders may well want higher interest rate because they probably want to keep the bonds instead of selling them.
Juan
Jordan Hayes wrote:
> From mpollak at panix.com Sat Jun 26 02:05:17 1999
>
> But why is the bond market is always said to "rally" when
> interest rates go down, and said to take a hit when they
> go up?
>
> Because what's "rallying" is the price, not the interest rate.
> That's probably too simple of an answer, though.
>
> That makes it seem like bondholders would always want
> *lower* interest rates to increase their capital gains.
>
> A bond*holder* is not directly affected by interest rate changes;
> if I buy a 6% bond and then it goes to 6.5%, what do I care other
> than the lost opportunity of having waited and bought the cheaper
> one? I might care if it went to 4% and my bond matured, because
> I was getting 6% and now the best I can do with my money when I
> get it back is invest it somewhere for 4%.
>
> While it's true that if interest rates go down that your bond may
> very well trade above par, if you sell it and capture a capital
> gain, you probably won't get enough to make up for the fact that
> you then have cash that you presumably need to invest and will
> receive much less interest on. Of course you've also removed your
> risk of default ...
>
> /jordan