joanna bujes wrote:
>Why is it that financial pundits are saying that
fixed income funds
>are a bad idea going forward?
Doug replied:
>Interest rates are very low.
Joanna - if you are asking generally about the relationship between interest rates and bonds, see http://www.investinginbonds.com/interestRates.htm
[Basically, if interest rates go up, bond prices go down (on bonds with no embedded options). This results from discounting the future cash flows of the bond (which would be the interest and principal) by a higher required rate of return (the benchmark interest rate, which the pundits are saying will go up). If your required rate of return is higher, the present value of your fixed future cash flows is now lower (discounting) and thus someone would pay equivalently less for your bond than they would for a new bond of similar principal, coupon and maturity date.]
Interest rates are probably not going to decline, but a hike is also (for better or for worse) not certain in the next few months.
Sami
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