Bonds,InterestRates,andtheImpactofInflation.pdfVIP

Navy Federal Brokerage Services Navy Federal Asset Management 820 Follin Lane SE Vienna, VA 22180 877-221-8108 Bonds, Interest Rates, and the Impact of Inflation There are two fundamental ways that you can profit What moves the seesaw? from owning bonds: from the interest that bonds pay, or from any increase in the bonds price. Many people In some cases, a bonds price is affected by who invest in bonds because they want a steady something that is unique to its issuer--for example, a stream of income are surprised to learn that bond change in the bonds rating. However, other factors prices can fluctuate, just as they do with any security have an impact on all bonds. The twin factors that traded in the secondary market. If you sell a bond affect a bonds price are inflation and changing before its maturity date, you may get more than its interest rates. A rise in either interest rates or the face value; you could also receive less if you must inflation rate will tend to cause bond prices to drop. sell when bond prices are down. The closer the bond Inflation and interest rates behave similarly to bond is to its maturity date, the closer to its face value the yields, moving in the opposite direction from bond price is likely to be. prices. The inflation/interest rate cycle at a glance Though the ups and downs of the bond market are If inflation means higher prices, why not usually as dramatic as the movements of the ? When prices rise, do bond prices drop? bond