Financial management

Article Summary

In the article, the author tries to examine how the interest rate increase may impact the bond market. A bond is an investment option that offers the investors with the benefit of fixed income security and also hedges against the risk equity investments. According to Sadler, the 30-year Treasury yield was high in the month of March 10, 2017, at a 3.20% with the anticipation of a rise in interest rate (Sadler, 2017). With the expected increase in interest rate, there is the expectation of a high corporate bond supply in 2017. Based on the interest rate futures, it is expected a 95.2% Fed increasing the rate as of March 15, 2017. From this scenario, an increase in the interest rate will drive the bond prices down and the yield up. Sadler (2017) claims that, with the rising interest rate in the future, the performance of the bond market will be impacted negatively. With the increase in interest rate, the investors are supposed to monitor the period of bond investment so as to avoid having serious impacts on their returns. According to the author, during rising interest rates, the actively managed bond funds usually have high duration. These actively managed bonds funds do have a duration of 5.8 years and also have an average yield of 3.3% (Sadler, 2017). In an environment of high-interest rates, the yield in a bond fund and the credit quality are supposed to offer support during this period. In the article, the author offered an analysis of how the increase in the interest rates would affect different types of bonds.

Article ties to topic

In the article by Sadler, it does provide an explanation of how the rise interest rate may affect the bond market. The article tends to tie to the Chapter 7 topic in the book that does examine valuing of bonds. In chapter 7 of the book, there are different issues that are explained relating to bonds which include bond valuation, bond features, types of bonds, and even how the interest rate does affect the bond prices. In the book, it provides a discussion of how the interest rates tend to affect the prices of bonds. As discussed in the book, when the interest rates rise, the bond prices fall and when the interest rate fall, the bond prices tend to rise (Cornett et al. 2014). The bond values normally fluctuate based on the financial conditions of the individual issues, the economic conditions, changes in interest rates, and the general market. In the article, it provides an explanation of how issues such as the interest rates impact the prices of bonds. From what is presented in the article, it tends to provide an in-depth explanation of the topic of bonds as seen in the book and also the use of examples does offer a good understanding of how the interest rates impact the prices of the bonds. As seen in the book and described in the article, the bond price is normally affected by the changes in interest rates; however, when everything equal, the long-term bond tend to experience large price changes when the interest rates change than for the short-term bonds (Cornett et al. 2014).

Reference

Nofsinger, J Adair, T & Cornett, M (2014). Finance: Applications and Theory.  McGraw-Hill Education

Sadler M (2017) How would the Fed’s interest rate hike, impact bond market? Market Realist from 

Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in custom nursing papers if you need a similar paper you can place your order from custom nursing essay.