The Implications of Historically High Bond Prices on Future Returns

Thursday, December 1, 2011

Preview:

With interest rates continuing to trade at historically low levels, many investors are getting accustomed to seeing very high dollar prices for most investment grade bonds they hold.  It is not unusual to see even intermediate maturity bonds (i.e. 4 to 9 year maturities) trading at dollar prices in the range of $105 to $120 per $100 of face value.  Not only are these high dollar prices becoming commonplace, but this pattern of higher and higher bond prices have been the norm in recent years as interest rates have moved down to the historically low levels they are currently.

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