Taming Inflation Investors sell bonds when interest rates rise because newer debt comes to market with higher?

Question

can someone explain how bonds come into play when inflation is rising and people are pulling out of equities. pls explain the 1st sentas well

Answer 1

The first sentence is incomplete - higher what? Rates of return? Yields? Price?

There are also several possible thoughts here. If an investor flees equities for bonds, it is generally not during inflation unless bond yields are falling with the underlying interest rate - something that very well could happen in times of inflation if the inflation is caused by a monetary phenomenon (ie, excess printing, rather than by some real phenomenon such as supply shortage). However, in such a period, new debt wouldn't come to market with a higher rate of return unless inflation was perceived to be rising in the future - thus investors in fixed-rate of return debt would require a higher interest rate to offset some of the real value loss from expected higher inflation.

Investors may also shirk equities for debt if there is perceived overvaluation in the equities markets, in which case investors are either taking profits, or minimizing losses. Inflation from an excess money supply may explain such an equities bubble (though usually equities and bonds will bubble simultaneously), but inflation from real factors will hurt equities markets, rather than leading to a bubble.

Maybe post the full sentence and I'll see if I can help.

Answer 2

if you hold a bond you are holding at a fixed rate of interest.

when inflation occurs the interest rate increases to follow inflation rate so it is better to pull money out of the bond you are holding(sell it) and put the money into something with the new higher interest rate