Darcy Bergen of Bergen Financial Group Discusses How Interest Rate Risk Affects Bonds

·3 min read

According to financial advisor Darcy Bergen, knowing the basics of how interest rates affect bonds can help investors feel more confident.

PEORIA, AZ / ACCESSWIRE / May 27, 2021 / Bond prices and interest rates typically move in different directions, which can impact how much your bonds are worth on the market, says Darcy Bergen of Bergen Financial Group, a 20-year veteran of the financial advising industry.

Darcy Bergen: How Interest Rates Affect Bond Prices

Like pendulums swinging in opposite directions, bond prices and interest rates have inverse relationships. According to Darcy Bergen, when interest rates go up, bond prices go down, and a reduction in interest rates makes bonds more attractive to investors.

This may seem strange to newcomers, as the weird relationship between bond prices and interest rates seems counterintuitive. However, changing interest rates is the most significant factor in considering current and future bond prices. Let's look at how it works.

Darcy Bergen Discusses What Happens When Interest Rates Rise

When interest rates go up, bonds fall in value. For example, if you hold a bond with a 3% return, and the market interest rate goes up to 4%, the bond becomes less attractive to investors. This makes long-term bonds quite volatile over the term of the bond. Shorter-term bonds hold their value more consistently because interest rates are likely to hold steady over shorter periods, says investor and financial advisor Darcy Bergen.

Lower prices improve the yield for prospective buyers to get discounted bonds. This means that their total return will increase as well. Floating rate bondholders welcome interest rate increases that increase the value of discount bonds.

Darcy Bergen Explains the Impact of Falling Interest Rates

Usually, declining interest rates equal increased bond prices. When interest rates rise, more people want to buy bonds to preserve their capital.

If interest rates decline, bond prices will rise. People will buy more bonds from current bondholders because they're worth more than new bonds coming out at the current interest rates. Working with a financial advisor can help investors identify these opportunities; selling existing bonds for a profit is a better strategy than buying low-interest bonds that won't increase in value.

So, when interest rates increase, new bonds have a higher interest rate as well. When interest rates decrease, corporations and governments take advantage of the lower rates and issue bonds at or below the market interest rate.

So, it's a matter of timing and strategy to sell your existing bonds and purchase new ones. Darcy Bergen advises investors to work with trusted financial advisors to determine the best time to enter or exit the bond market.

About Darcy Bergen

The founder and CEO of Bergen Financial Group, Darcy Bergen, has served clients as a financial advisor for more than two decades. He specializes in retirement and life planning finances for individuals. Darcy is available for investors with questions about when to hold or sell their bond investments or enter the market for the first time.

Investment advisory and financial planning services offered through Simplicity Wealth, LLC, a Registered Investment Advisor. Sub-advisory services are provided by Advisory Alpha, LLC, a Registered Investment Advisor. Insurance, Consulting and Education services offered through Bergen Financial Group. Bergen Financial Group is a separate and unaffiliated entity from Simplicity Wealth and Advisory Alpha.

This material is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision.

Guarantees are backed by the financial strength and claims-paying ability of the issuing entity.

CONTACT:

Darcy Bergen
Bergen Financial Group
www.bergenfinancialgroup.com info@bergenfinancialgroup.com
+1 602-635-4875

SOURCE: Darcy Bergen



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