You need a spreadsheet to predict the net
effect on bond prices of both rate changes and changes of the yield curve (or position on the yield curve).
Speaking of the Treasury, they've got to pretty massively increase the supply of bonds to the market to fund the deficits induced by the tax cut and spending bill, which puts downward
pressure on bond prices and upward pressure on yields.
The jump in bond yields last week provided a small opportunity to increase the duration of the Strategic Total Return Fund, which is now at about 2.4 years - still low, but nibbling
slightly on bond price weakness.
So if an investor were calculating
YTM on a bond priced below par, he or she would solve the equation by plugging in various annual interest rates that were higher than the coupon rate until finding a bond price close to the price of the bond in question.
If you're looking for a short term
trade on bond prices, then I completely agree that bond funds would be the easiest choice... If you're looking for capital preservation, then you're going to want to hold the individual security, in my humble opinion.
Humorous
piece on bond pricing, with six blind men analyzing the elephant, and one sighted guy reluctant to explain why they are right sometimes, but wrong most of the time.
Also
weighing on bond prices (and pushing up yields) is the expected macroeconomic impact of President Trump's polices.
Additionally, there has always been this chronic concern that inflationary pressures lurk just around the corner and will ultimately put
pressure on bond prices.
With current interest rates so low, an increase in interest rates to 2011 levels would mean a dramatic change in the interest rate environment and a corresponding dramatic
effect on bond prices, resulting in a «plunge» in bond prices.
But before you make drastic changes to the fixed - income side of your portfolio, make sure you understand the subtleties of interest rates and their effect
on bond prices.
Several factors, including the strong economy, slightly faster wage growth and a potentially larger government deficit as a result of the Tax Reform bill, could put downward pressure
on bond prices.
The longer the bond duration and the higher the interest rate, the greater the effect
on bond prices.