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December 29, 2006, Newsletter Issue #47: Trading Bonds
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Tip of the Week
Trading individual bonds is not a beginner bond investing strategy. Still, a fundamental knowledge of bond trading can be useful.
If a bond is bought before long-term interest rates fall, it can be sold for a profit because it is worth more in interest than the bonds being sold at the lower rate. Conversely, if a bond is bought right before long-term interest rates rise dramatically and then sold, it will be sold for a loss. Even though selling a lower-yield bond could lose money in the short term, a seller needs to take into consideration how much interest can be made by channeling the money from the sale into a higher-yield bond. Buying and selling fees must always be included in the cost/benefit analysis.
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