…in an raising rate environment buying an interest bearing …investment will result in the yield going up and price going down.
Sir,
That’s the whole explanation for price declines in debt instruments only when there are no other factors to consider. The prime example is Treasury zeros, which are pure bets on the level/direction of interest rates. When the issuer’s credit-worthiness has to be considered as well, then the instrument can easily be priced down for those latter reasons alone. This is easy to see with corporate debt. The higher the credit quality, the more their prices are driven by interest-rates alone, whereas solid, spec-grade debt tends to not get priced down as badly in a rising rate environment unless it’s in an industry that depends on the level of interest rates being favorable to it. Then it suffers a double whammy, which is my prediction for PEB.
As for the Fed/Treasury cartel being able to fix problems they themselves have created? No one has done it since Volker. The US economy is so bad that it can’t even service the interest on its debts from revenues. Worse, the US has already lost the currency war it launched as is witnessed by the fact that 2/3rds of the world’s economies are ‘dedollarizing’ as fast as they can. Can’t happen? Won’t happen? Even the US’s staunch Mideast ally, Israel, is reducing its holdings of $US and replacing them with rubles and yuan.
Arindam