Hi, if I have $10,000 and want to put it into bonds/a fixed income investment to get regular payments. When I compare the 2 year treasury note to the 30 year treasury bond why wouldn’t I always buy the 30 year yielding roughly 2.5% compared to the 2 year yielding less than 1%? Thanks

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Posted by James (MONEY FORUMS: 1, Answers: 0)
Asked on April 29, 2016 4:12 am
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Hi James, great question. Bonds are a bit of a confusing market because of the inverse relationship between interest rates and bond prices. When you buy a 30 year bond yielding 2.5%, your investment may not keep up with inflation. If the interest rates on bonds (30 year equivalents) rises, then your bond goes down in value. Of course, you could always hold your bond until it comes due, but you’ll have lost out on interest. Basically, the lower interest rate compensates for the fact that you will get your return sooner and you take on less interest rate risk (in the event that interest rates rise). Still confused by my opaque explanation? This is one of my favorite articles on the matter. http://awealthofcommonsense.com/2016/02/why-bonds-are-so-confusing/

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Posted by Hannah Rounds (MONEY FORUMS: 1, Answers: 54)
Answered: April 30, 2016 3:45 pm