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Risks abound with inflation-linked bonds

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cnbunny's version from 2018-02-23 07:22

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Question Answer
When Inflation hits, interest rates go ---. When rates ---, bond prices go ---.up
up
down
As economic growth recovers and real rates rise, the price of TIPS will ---, leaving TIPS investors with large --- in the face of accelerating inflation.fall
losses
There's going to be a heap of pain out there for people who bought TIPS. They will get walloped by --- interest rates and --- bond prices.higher
lower
Siegel prefers investing in ---, referring to the long-term return of equities, which he says historically have averaged ---% to ---%.stocks
6, 7
Cohen says she remains a --- fan but would switch to --- or ---, not --- funds.bond
intermediate, short-term
bond
A negative real yield means that investors are willing/not willing to buy investments that promise to pay off less/more than the inflation ratewilling
less
What has caused the unprecedented collapse of real yields around the world? (2)1) central bank policies that have pegged short-term interest rates near zero while inflation is still positive
2) slowing real economic growth (real GDP growth has fallen to 2% since 2000)
The major reason for dramatic drop in real yields?level of pessimism and risk aversion that has gripped investors
Why does Siegel think there will be economic growth? (2)1) emerging economics are growing rapidly (India and China)
2) technological change
Although TIPS may compensate holders for future inflation, the interest rate that they offer is far too high/low to offset the risk of rising rates.low
memorize