) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.I have wondered about this for some time, but your recent article in the Globe prompted me to write.
You, and other investment writers constantly refer to the “fact” that bonds rise and fall in price and are therefore may not be a good holding. But if I buy a bond at issue I will receive exactly the return that I expect if I hold it to maturity – the ups and downs of the asset price are irrelevant. I do have to rely on good credit checking, but that is a different issue.
My point is even more relevant for a Real Return Bond. Once I buy it, I receive the coupon rate plus inflation, and get the capital plus inflation when it matures. Again, the gyrations in price are irrelevant, particularly the changes in the Real Return Bond Index. Or am I missing something? - John D.There are a few things to consider. First, most investors do not buy bonds directly.
For those who do invest directly, your argument is correct, to a point. You get what you pay for in terms of the interest on the security and your capital back at maturity - assuming you buy at par or below. But the purchasing power of the interest and repayment at maturity will be eroded by inflation.Real Return Bonds the answer? The principal and interest are adjusted for inflation. But what is the underlying return on the bond? According to the Bank of Canada, as of Feb.