reep asked in Business & FinanceInvesting · 10 months ago

If the yield curve is flattening for longer term bonds, would you invest in a more short term bond or a longer term bond?

2 Answers

  • GA41
    Lv 7
    10 months ago

    A short-term bond.  You should be paid a higher yield for the added risk you assume in buying a long-term bond.  As the yield of the long term bond approaches the yield of the short-term bond, the premium you are paid for assuming the risk of a long-term bond diminishes. You do not want to assume any risks which you are not being paid a premium to carry.

    However, future interest rates affect your decision.  If you think the interest rates are going to decrease, then you would want to lock-in the higher yield by holding the long-term bond.  However, the reason the yield curve is flattening is affected by what investors think will happen to interest rates. So I think you would still go with the short -term bond.

  • 10 months ago

    If interest rates were low, as they are now, I would invest in a more short term bond.

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