Creating Wealth in a Rising Interest Rate Environment

As an investor, it is important to understand how interest rates affect bonds. For instance, rising interest rates due to inflation generally put downward pressure on the price of bonds. Knowing this information is imperative so you can understand when to invest in specific interest-bearing instruments, such as corporate bonds and treasuries.

A yield curve, a graph of a bond over different maturities, shows that interest rates are lower on bonds with shorter maturities and higher on those with longer maturities. There are many different scenarios that can occur when there are movements in the yield curve. In some cases, returns can be more profitable if the right maturity bonds are purchased before interest rates decrease. This means prices go up or stay the same relative to bonds that mature differently.

For example, a flattening yield curve causes a short-term bond’s yield to go up, which causes the prices of short-term bonds to go down. The interest rate on the longer maturity bonds stays relatively the same, so the prices of the longer-term bonds are more likely to have preserved your investment.

At Fogel Capital Management, we see changes in interest rates like this as an opportunity. Back in 2009, we saw a flattening of the yield curve, so we positioned ourselves in bonds that would have the best price increase due to the falling rates. Our expertise and analysis go a long way in determining what future performance can be like. Every portfolio is unique and can be looked at by one of our in-house professionals. Call (772) 223-9686 to get a consultation or schedule an appointment online.