Climbing the Ladder: How to Manage Risk in Your Bond Portfolio

Climbing The Ladder: How To Manage Risk In Your Bond Portfolio Splash image
The stock market crash of October 1987 was highly dramatized in the media. But during that year, more money was lost in long-term bonds and bond funds than in stocks.

Interest rates fluctuated widely throughout the year, then rose dramatically by the end of that year. This caused the bond market to lose significant value.

Why?

When interest rates rise, market values of existing bonds drop because their interest rates are fixed and the present value of the bond's stream of interest payments fluctuates. These factors caused investors to panic and sell their bond funds, leaving fund managers with no choice but to sell these long-term bonds at depressed prices as a way to generate cash for redemptions.

...To continue reading this article you must be registered with AAII.

Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
JOIN TODAY for just $29.
Log in
Already registered with AAII? Login to read the rest of this article.

Register for FREE
to read this article and receive access to future AAII.com articles.
  


Discussion

No comments have been added yet. Add your thoughts to the discussion!

You need to log in as a registered AAII user before commenting.
Create an account

Log In