Re:The Great Steepening
by dragontamer on Wednesday March 23, 2022 @01:32PM
(#30781043)
When Grandpa Joe / Grandma Jane decides to sell some of their retirement fund to pay for their grandkid's Christmas presents later this year, you can bet that they'll be selling bonds to get those dollars!
When those bonds are suddenly worth 5% or 10% less due to rapidly rising interest rates, on top of 7% inflation, they'll be pissed. In any case, you're basically causing the retirement funds of millions-of-Americans to suddenly decline in value.
This decline in value is arguably more important than the coupon value itself. That's all I'm trying to say. If you focus 100% on the coupon rate, you're ignoring the greater effects of the market.
When those bonds are suddenly worth 5% or 10% less due to rapidly rising interest rates, on top of 7% inflation, they'll be pissed. In any case, you're basically causing the retirement funds of millions-of-Americans to suddenly decline in value.
This decline in value is arguably more important than the coupon value itself. That's all I'm trying to say. If you focus 100% on the coupon rate, you're ignoring the greater effects of the market.