When is the best time to buy BOND FUNDS (such as VBMFX ) and why?

Question

when the interest rates are high or when interest rates are low (such as now) ? please explain.

Thank you

Answer 1

If rates are low, then they go high, your bond holdings will lose resale value. You'll still be recieving the same interest - about 4percent, in a 9percent inflation (and increasing ) world. Yield is currently low, because other investment areas are unsafe - I expect people to sell bonds hard, when they figure stocks are safe again, or better then getting that 4 percent.  I'd wait until all this inflation is priced in to bond yields.

  

      The people who really did good on bonds, bought them in the late 70s, when inflation was high. They got high yields for years, & the resale value of their bonds increased, after inflation was broken by the fed raising interest rates. yields went low again, thus price high, but they still got the high yield they'd locked in when they bought.



    Now, if we end up with deflation (brought on by severe recession)

Then a 4 percent yield will seem like a real good deal. I can't see deflation happening - the govt. has sold too many IOUs, and will have to print loads of dollars to buy them back. The chinese and OPEC will have lots of dollars to spend, even if no one here does.

Confusing stuff - make sure you understand what you're doing. Investopedia has good articles.

Answer 2

Generally speaking bond funds do better with lower interest rates.  The shorter the term of the bonds the less they are generally affected by interest rates.