I am very confused because I thought if interest rates go up, that means bonds now become valuable? What makes a bonds index fund like BND go down? Arent bonds just loans against the government or corporations? Shouldnt that be a good thing all the time? Shouldnt a ticker like BND always be green?? I am so confused!! Thank you in advance for reading and answering my stupid question lol
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Think about it like this:
I give you $95 and you give me a sheet of paper that says “On April 17, 2024, I will give you $100.” That means that, implicitly, you’re paying about 5.3% on the $95 (95 * 1.053 = 100) Now, interest rates go down to, say, 3%. I can now sell that sheet of paper for a little over $97. (because 97 * 1.03 = 100)
But, let’s say interest rates went to 8%. NOW, that sheet of paper is only worth about $92.60. (92.60 * 1.08 = 100) So, I’ve lost money.
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