With interest rates at historic lows, and the Fed saying they will
keep short rates low for an “extended time,” there is much confusion among
financial pundits as to where interest rates and bond prices are headed in the
coming years. With so much disagreement among the experts, many of our clients
have asked that we provide an in-depth discussion of our views on inflation and
interest rates, and the path these rates may follow in the coming years.
Although we regularly answer these questions in our client
meetings, using our blog allows us to quickly explain our
current views and strategies to a larger audience.
This particular series of blogs focuses primarily on the bond
market; beginning with the basics before tackling the more complicated issues.
The format is Q&A. The first installment is a brief analysis
of the fundamentals of bond investing, which we hope will build a solid
foundation of understanding as we move forward. Nathan Winklepleck, co-editor
of the blog, has assembled a list of our most frequently asked questions. He
will serve as the moderator for the Q and A and will ask Joe Zabratanski our
Senior Fixed Income Manager and Greg Donaldson our Chief Investment Officer to
provide answers and commentary.
Q: Nathan: We have received several questions from clients
about the impact of changing rates on bond prices. Could you explain
the relationship between interest rate fluctuations and fixed income prices? How and why does one influence the other?
