Re:Why in the world would you own bonds?
by DennisP on Wednesday March 17, 2021 @10:09AM
(#26491434)
That's not actually better, as long as interest rates keep falling. If you're holding 30-year bonds at zero interest, and the 30-yr rates go to -1%, then you get a capital gain of 35%. If rates go from -1% to -2%, that's a 40% capital gain.
Of course the reverse is true as well. If rates go up, you get equivalent capital losses. (You can avoid taking the loss by holding to maturity, but you'll have the same result as if you sold your low-interest bond, taking the loss, and invested your remaining money in a new higher-interest bond that matures at the same time.)
https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...
Of course the reverse is true as well. If rates go up, you get equivalent capital losses. (You can avoid taking the loss by holding to maturity, but you'll have the same result as if you sold your low-interest bond, taking the loss, and invested your remaining money in a new higher-interest bond that matures at the same time.)