Three types of bonds: Part 1 - Fixed rate bonds

This is the first article in a three part series. Combined, the articles explain that bonds are appropriate investments across all economic cycles. There are three different bonds that work best under different economic conditions: fixed rate, floating rate and inflation linked.

By Angus Knight · 18 Feb 2015

By Angus Knight ·
18 Feb 2015

Comments

Fixed rate
Floating rate
Inflation linked

It is important to hold an allocation to all three bonds for protection, as investors can never be sure that interest rates will not move higher or lower or inflation spirals. However, the portfolio weighting may change depending on the investor’s view of interest rates.

To read the full article, please click here.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What are the three main types of bonds mentioned in the article?

The article discusses three main types of bonds: fixed rate bonds, floating rate bonds, and inflation-linked bonds. Each type is suitable for different economic conditions.

Why is it important to invest in all three types of bonds?

Investing in all three types of bonds is important because it provides protection across various economic cycles. This diversification helps manage risks associated with fluctuating interest rates and inflation.

How do fixed rate bonds work?

Fixed rate bonds offer a set interest rate over the life of the bond, providing predictable income. They are ideal when interest rates are stable or expected to decrease.

What role do floating rate bonds play in a portfolio?

Floating rate bonds have interest rates that adjust with market conditions, making them beneficial when interest rates are expected to rise. They help protect against interest rate risk.

How do inflation-linked bonds protect against inflation?

Inflation-linked bonds adjust their interest payments based on inflation rates, ensuring that the investor's purchasing power is maintained even when inflation rises.

Can the portfolio weighting of bonds change over time?

Yes, the portfolio weighting of bonds can change depending on the investor’s view of future interest rates and economic conditions. Adjusting the allocation helps optimize returns and manage risks.

Are bonds suitable for all economic cycles?

Yes, bonds are considered appropriate investments across all economic cycles. Different types of bonds perform better under varying conditions, making them versatile investment options.

What should investors consider when choosing bond allocations?

Investors should consider their outlook on interest rates and inflation when choosing bond allocations. A balanced approach with all three types of bonds can provide stability and protection.