The Federal Reserve will very likely raise interest rates soon. You may have heard that bond values go down when interest rates rise. Not necessarily: Not all bonds are hurt by higher interest rates, and some actually go up. It depends on the type of bond.
Janet Yellen recently said it was likely the Federal Reserve would raise interest rates this year. Bond values typically go down when interest rates go up, so several of my clients have asked me if they should sell their bonds.
It’s true that bond values usually have an inverse relationship to interest rates. Here’s an example: Let's say you have a bond that is paying 3 percent and the prevailing interest rates are 3 percent. Then interest rates are raised to 5 percent. If you decide to sell that 3 percent bond, do you think anyone would want to buy it when other investments are now available for 5 percent?
I believe 2017 is going to be an up year in the market. Why?
1. The Federal Reserve plans to raise interest rates. The Fed has said it will most likely raise rates three times this year. You might think that would cause the market to go down: after all, the market likes low interest rates and cheap money, right?