Interest rates in the EU are already close to 0% or negative (which confuses me a lot). As far as I understand individual bonds, their value increases when interest rates fall (old bonds have a better return than new ones) and decrease when interest rates rise (can get newer bonds with a better return). However, I'm having trouble imagining the interest rates going down even lower - who would ever want to lend somebody money and then pay them for the privilege? Thus the interest rates can only rise, which would lower the value of bonds. Yet this doesn't feel right - who would ever invest into bonds knowing that they can only lose value?
While I can to at least some degree reason about individual bonds, I have no idea how bond funds are supposed to behave. For example, if more people become interested in buying bonds, does the price of bond funds increase or decrease? I could imagine that it would increase because demand is bigger, but I could also imagine they would decrease in value because borrowing money would become easier and thus interest rates would fall. What moves the price of a bond fund?
Submitted October 23, 2017 at 09:52AM by user78316 http://ift.tt/2laen8X
