CHAPTER 5LOOKING OUT FOR A POTENTIAL CHANGE TO THE UPSIDE FOR INTEREST RATES

After reading our case for a continued secular bull market in commodities and higher inflation in Chapter 4, the Smiths are probably wondering about the implications for their bond investments. Before we launch into a discussion on the long-term interest-rate trend change, a brief and basic primer of terms is useful. Often, inexperienced investors get lost in the jargon common to the investment world. The terms yield and interest rates are usually used interchangeably in bond discussions. There is a difference however. Interest rate is the return originally given to a debt instrument (bond or note) and once issued is generally fixed for the life of the debt instrument. ...

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