Sharply Fallen Interest Rates
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If I believe interest rates will fall sharply over the next sixth months, what type of bonds should I purchase to provide capital gains on the interest rate move? If I expect rates to rise, what bonds should I purchase?
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Solution Summary
The expert examines sharply fallen interest rates. The capital gains on the interest rate moves are examined.
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Because there are so many bonds in the market, it's hard to provide a specific answer to the question, but generally we can limit our choices within bonds with options: Callable and Putable Bonds
Callable Bonds contain a "call provision": The issuer has the option of buying the bonds back at the call (exercise) price rather than having to wait until maturity
Attractive option for issuers if interest rates fall, since ...
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