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Higgins Capital Management, Inc.

Bonds, Interest Rates, and the Impact of Inflation

The ups and downs of the bond market can have a significant impact on your overall bond portfolio return.

If you're considering investing in bonds it's important to understand how bonds behave and what can affect your investment in them.

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The price-yield seesaw and interest rates.

Both bond prices and yields go up and down.  But it is important to understand that bond prices and bond yields move in opposite directions, much like a seesaw. When a bond's price goes up, its yield goes down, even though the coupon rate hasn't changed. The opposite is true as well: When a bond's price drops, its yield goes up.

When bond prices rise, yields in general fall, and vice versa.

What moves the seesaw?

The twin factors that affect a bond's price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop.

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The information contained in this communication is provided for information purposes and is not a solicitation or offer to buy or sell any securities or related financial instruments in any jurisdiction. Past performance does not guarantee future results.

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