Should You Maintain an Allocation to Bonds When Current Rates Are Low?


This week’s AAII Weekly Digest highlights these
“must-read” AAII articles:


Closed-End Bond Funds Versus Individual Bonds: A Case StudyClosed-End Bond Funds Versus Individual Bonds: A Case Study

Closed-end bonds may look attractive based on their yields and discounts to net asset value, but there are pitfalls to watch out for. This article is a case study of a defined-maturity closed-end fund. The analysis is not intended to criticize any specific fund, but rather to demonstrate where risks and pitfalls may lie with a closed-end bond fund (particularly a defined-maturity one) and how to go about identifying them.

Should You Maintain an Allocation to Bonds When Current Rates Are Low?

Craig Israelsen

The performance of bonds is related to movement in interest rates. Those two phenomena are related—that much we know. How tightly they are related is a pertinent question at this point in time. This article reviews how interest rate movement and bond returns have been related to each other since 1948.


Determining Bond Price Volatility

To help evaluate the volatility inherent in fixed-income investments, this Spreadsheet Corner installment presents a template that allows you to calculate bond values based on knowledge of the coupon rate, the length of time to maturity and the current market interest rate. In addition, you will be able to see how bond prices can change with changes in market interest rates. In particular, you can examine the effects of changing interest rates on the total value of a bond portfolio, such as a bond mutual fund.


Bond Analysis: The Concept of Duration

Bondholders can be hurt by a number of circumstances: the issuer may decide to redeem the bonds before the maturity date, the issuer may default or interest rates may fluctuate and reduce the overall return of the bonds to the investor. The first two risks, call risk and default risk, can be minimized by careful bond selection and by constructing a bond portfolio that is adequately diversified. The risk of changing interest rates, however, can be evaluated and minimized by employing the concept of duration.

Our Member Question for this week is:

The yield on the 10-year Treasury note recently closed above 2.5% for the first time since March of last year. For some, this is a sign that inflation is on the rise. How worried are you about inflation?


Vote to answer this week’s Special Question: How well-equipped do you think the Federal Reserve is to ward off rising inflation?

Last Week’s Results:

What is your opinion of financial advisers?

Poll results are as of 9 a.m. (Central) on Monday. 2,069 respondents.

AAII Survey: Readers Offer Opinions on Financial Advisers

Our latest weekly survey question asked our readers their opinion of financial advisers as well as the primary reasons why they do or don’t use an adviser. The results may surprise you.


AAII Investor Classroom: Bond Investing

Think of the bond market as a mystery wrapped in an enigma? You are not alone. But this AAII classroom—a member exclusive—pulls back the curtain so that you can analyze individual bonds with confidence.




The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a 30-day Trial AAII Membership to start becoming an effective manager of your own assets.


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