Interest rates and bonds: What is their relation?
I read in a study text that:
When interest rates are decreasing, investors will migrate their bonds from short- to longer-term ones
When interest rates are increasing, investors will migrate their bond holdings from longer-term to shorter ones
I don't fully understand why this would be, but I think this would have to be due to risk management and/or an attempt to take advantage of large movements in bond price.
Could anyone shed some light here to help me to understand what the relation between interest rates and bonds?
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If bond rates are falling, investors will want to buy longer-term bonds in order to LOCK IN today's (presumably) higher rate for as long as possible.
If bond rates are rising, investors will prefer to buy shorter-term bonds that can be ROLLED OVER at (presumably) higher rates later.
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