Financial Matters

Prior to a couple of weeks ago, the last time that the Fed raised interest rates was 2006 – now with a mending economy the Fed Committee has increased the federal funds rate to 0. 25%-0. 50%, up from a range of zero – 0. 25%. It is quite likely that the Fed will continue to slowly raise rates over the coming months which will bring a mix of good and bad trends for the investment markets. An important component for investors, with regard to interest rates is the effect rates have on bond holdings. As seen in the example below, there are two major risks to bonds. 1) Interest Rate Risk – As interest rates climb the value of existing bonds decreases. Also, the longer the maturity the bigger the decline will be. The technical term for maturity is "duration", which is defined as a measure of the sensitivity of the price of a fixed-income (bond) investment to a change in interest rates. 2) Credit Quality – Think of this like a FICO score with a 'AAA' bond rating being an 820 FICO, while a 'B'...

The first quarter of the new year has brought us small positive returns in many of the U. S. and global indices, and more than the usual amount of anxiety along with them. Meanwhile, global markets are showing signs of life. If you were watching the markets day to day, you experienced a mild roller coaster, what trading professionals refer to as a sideways market. One day it was up, the next down, each day (or week) seeming to erase the gains or losses of the previous ones. The best explanation for this phenomenon is that investors are still looking over their shoulders at interest rates, waiting for bond yields to jump higher, making bonds more competitive with stocks and triggering an outflow from the stock market that could (so the reasoning goes) cause a bear market in U. S. equities. However, investors have been waiting for this shoe to drop for the better part of three years, and meanwhile, interest rates have drifted decidedly lower in the first quarter.This inter...