Letter to Clients re: flood

August 16, 2016

Friends,

We have put this information together to assist you in any way we can.  We have done this through our own limited research, so please refer to FEMA and Red Cross for specifics.

We will open our offices Wednesday August 17 and have laptop computers there for you to come in and register for any aid or reach out to loved ones OR just enjoy a few minutes catching up on social media!

God Speed,

Christopher L Boggs
President

 

 

1.   Determining Eligible Benefits. This questionnaire helps you determine what     benefits you may be eligible for.

https://www.disasterassistance .gov/get-assistance/find- assistance

2.   This is the hyperlink to FEMA’s IHP Applicant’s Guide. The first few pages give a nice summary of eligible v. ineligible losses, etc. I’ve also attached it in PDF format.http://www.fema.gov/pdf/assist ance/process/help_after_disast er_english.pdf

3.   Online Application Process. This link takes you to the online application process.

https://www.disasterassistance .gov/DAC/govBenefitReceiver. do?gbsessionid=0&action=RI&lan gcode=EN

4.   Information for Online Application. You’ll need to have the following information handy to apply online:

·      Social Security number

·      Family’s gross total household income at time of disaster;

·      Contact information

·      Electronic Funds Transfer (EFT) Direct Deposit Information (could facilitate quick transfer of funds)

5.   FEMA Evacuee Hotel List: (Note: you’ll need to select Louisiana before hitting submit to search) http://www.femaevachot els.com/index.php

FEMA’s IHP PROGRAM SUMMARY

Before you apply for FEMA’s IHP Program online, it may be helpful to know what benefits you are eligible for:

The following are not eligible losses under the IHP:

·      IHP will not cover all of your losses from damage to your property (home, personal property, household goods) that resulted from the disaster.

·      IHP is not intended to restore your damaged property to its condition before the disaster.

·      In some cases, IHP may only provide enough money, up to the program limits, for you to return an item to service. IHP does not cover business‐related losses that resulted from the disaster.

·      By law, IHP cannot provide money to you for losses that are covered by your insurance.

·      While some money is available through IHP, most disaster aid from the Federal government is in the form of loans from the Small Business Administration (SBA) that must be repaid.  Applicants to IHP may be required to seek help from SBA first, before being considered for certain types of IHP help.  You do not have to submit an SBA loan application to be considered for FEMA rental assistance

The following types of assistance are available through the IHP:

  • Temporary Housing (a place to live for a limited period of time): Money is available to rent a different place to live, or a government provided housing unit when rental properties are not available.
  • Repair: Money is available to homeowners to repair damage from the disaster that is not covered by insurance.  The goal is to make the damaged home safe, sanitary, and functional.
  • Replacement:   Money is available to homeowners to replace their home destroyed in the disaster that is not covered by insurance.  The goal is to help the homeowner with the cost of replacing their destroyed home.
  • Permanent/Semi Permanent Housing Construction:  Direct assistance or money for the construction of a home.  This type of help occurs only in insular areas or remote locations specified by FEMA, where no other type of housing assistance is possible.
  • Other Needs:  Money is available for necessary expenses and serious needs caused by the disaster.  This includes medical, dental, funeral, personal property, transportation, moving and storage, and other expenses that are authorized by law.

Program Eligibility

To receive money or help for Housing Needs that are the result of a disaster, all of the following must be true:

·      You have filed for insurance benefits and the damage to your property is not covered by your insurance. You may be eligible for help from IHP to repair damage to your property.

·      You or someone who lives with you is a citizen of the United States, a non‐citizen national, or a qualified alien.

·      Your home is in an area that has been declared a disaster area by the President.

·      The home in the disaster area is where you usually live the majority of the year.

·      You are not able to live in your home now, you cannot get to your home due to the disaster, or your home requires repairs because of damage from the disaster.

To receive money for Needs Other than Housing that are the result of a disaster, all of the following must be true:

·      You have losses in an area that has been declared a disaster area by the President.

·      You have filed for insurance benefits and the damage to your personal property is not covered by your insurance. You may be eligible for help from IHP to repair damage to your property.

·      You or someone who lives with you is a citizen of the United States, a non‐citizen national, or a qualified alien.

·      You have necessary expenses or serious needs because of the disaster.

·      You have accepted assistance from all other sources for which you are eligible, such as insurance proceeds or SBA loans.

You may not be eligible for money or help from IHP if:

·      You have other, adequate rent‐free housing that you can use (for example, rental property that is not occupied).

·      Your home that was damaged is your secondary or vacation residence.

·      Your expenses resulted only from leaving your home as a precaution and you were able to return to your home immediately after the incident.

·      You have refused assistance from your insurance provider(s).

·      Your only losses are business losses (including farm business other than the farmhouse and self‐employment) or items not covered by this program.

·      The damaged home where you live is located in a designated flood hazard area and your community is not participating in the National Flood Insurance Program. In this case, the flood damage to your home would not be covered, but you may qualify for rental assistance or items not covered by flood insurance, such as water wells, septic systems, medical, dental, or funeral expenses.

This is a hyperlink to the National Flood Insurance Agent Locator website:https://www.floodsmart .gov/floodsmart/pages/choose_ your_policy/agent_locator.jsp

Types of Eligible Losses

IHP only covers repairs or replacement of items that are damaged as a direct result of the disaster that are not covered by insurance. Repairs or rebuilding may not improve your home above its pre‐disaster condition unless such improvements are required by current building codes.

Housing Needs: Money to repair your home is limited to making your home safe and sanitary so you can live there. IHP will not pay to return your home to its condition before the disaster. You may use your money provided for housing needs to repair:

·      Structural parts of your home (foundation, outside walls, and roof).

·      Windows, doors, floors, walls, ceilings, and cabinetry.

·      Septic or sewage system.

·      Well or other water system.

·      Heating, ventilating, and air conditioning system.

·      Utilities (electrical, plumbing, and gas systems).

·      Entrance and exit ways from your home, including privately owned access roads.

·      Blocking, leveling, and anchoring of a mobile home and reconnecting or resetting its sewer, water, electrical and fuel lines, and tanks.

Other than Housing Needs: Money to repair damaged personal property or to pay for disaster‐related necessary expenses and serious needs is limited to items or services that help prevent or overcome a disaster‐related hardship, injury or adverse condition. IHP will not pay to return or replace your personal property to its condition before the disaster. You may use your money provided for other than housing needs to repair or pay for:

·      Disaster‐related medical and dental costs.

·      Disaster‐related funeral and burial cost.

·      Clothing; household items (room furnishings, appliances); tools (specialized or protective clothing and equipment) required for your job; necessary educational materials (computers, school books, and supplies).

·      Fuels for primary heat source (heating oil, gas, firewood).

·      Disaster‐specified clean‐up items (wet/dry vacuum, air purifier, and dehumidifier).

·      A vehicle damaged by the disaster.

·      Moving and storage expenses related to the disaster (moving and storing property to avoid additional disaster damage while disaster‐related repairs are being made to the home).

·      Other necessary expenses or serious needs as determined by FEMA.

Economic Report

 Topics:

• US recession – Yes or No?

• Negative Interest Rate Environment

• The Trump Effect

• BREXIT

Remember 2 months ago?  The TV pundits, the emails, and whichever financial magazine print you saw . . . Pretty much all of them were mentioning a recession.  We said no, but has my opinion changed?

The “Surprise Index” of data gathered by CitiGroup showed domestic stabilization, while pointing to continued Global Struggles, however across the board most Global Data was better than expected.  They may not be saying much for the Global markets in the short-term since they have a few obstacles which I will touch on in this article.

We are in disagreement, still, with those who support a turn towards a recession and simply we look at the following data that we feel supports our position.

Credit continues to be widely available.  This is good for growth, could cause issues down the road with inflation, but we don’t have the same concerns on debt that we saw in 2008.  Currently approximately 5% of of home owners hold negative equity, meaning their home is not worth what the owe on it . . . Compare that to 2008 when we were close to 40% negative equity.

Also, corporate liquidity is strong across the board – Companies have cash.  

Job openings have continued to improve, the private sector continues to add jobs and Jobless claims continue to reduce and fall short of expectations, which falling short in this instance is a good thing.

Our short-term concern is productivity and the new growth build to our Global Economy.  We haven’t seen the “new thing” that could push growth forward . . . One of the largest bursts of productivity growth in the US was in the 1970’s when talented women joined the workforce.  The in the late 1990’s we had a technology shot in the arm of productivity.  Since 1999 we have seen little to no productivity increase.  Real GDP, meaning growth of our US economy minus core inflation growth (cost of things today) per worker peaked in 2000 and since then we have remained stagnant, and worse, blue collar pay has remained at early 2000 levels, while inflation has grown . . . People are living on less.

We MUST see growth in productivity.  But how?  

One idea is to compress income and bring income higher focusing on the bottom, but increase in all wage earnings.    The longer term growth in productivity could come from education investments and not college level, but primary education followed by trade education, which is severely lacking in the US.  

Historically we have witnessed other Countries attempt to grow productivity and in the most well known situation, we see that the Japanese model of negative interest rates and consumption to jump start growth may have a VERY short term effect . . . Long-term it will not correct low productivity.

China is in the same boat, however their boat is sinking fast and their economy is remarkably fragile.  China has manipulated interest rates, currency, and used other methods to attempt growth, however they’ve only managed to create what some call Zombie Growth or Smoke Stack economic drivers such as technology and entertainment, which we know has  little impact on true long-term growth of an economy . . . In our opinion, China will be going down a very similar road as Japan has been on since the 1980’s.

The TRUMP effect.  Love him or hate him, he is having a impact on current market conditions.  Let’s be clear, energy prices (think oil). Is having the largest impact on current market conditions with the SP500 moving up and down very similarly to crude oil prices.  We have been asked many times, “should I be buying oil right now?”  First, we already own energy through the investment selections we have, but we don’t feel the need to take unwarranted risk to buy oil.

Let’s look deeper than the hype of “The Donald”.  First in most any scenario of an election cycle (who will run for nomination, who drops out, who the front runners are, who is actually nominated, to the final . . . Who is elected) we see volatility in the markets with a transition to stabilization as we get closer to the actual Election Day.

Trump loves the poor and less educated and there is solid reasoning to his affection for that base of electors.  We don’t need to look much past Median Household Income, which is approximately $52,000 currently.  BUT, with inflation real numbers . . . That $52,000 is the approximate equivalent to household income in 1996.

Unemployment number of those 25 years and OLDER are high.  40% of college graduates are doing high school degree jobs, yet have the debt of college and part-time employment in 2000 was 6.7% and today may possibly reach 10%, which means many people who held good full-time paying jobs in 2000, are working part-time earning significantly less today.

There is a reason Trump is appealing to some since he is trying to build a base focused at the poor and less educated since they are the individuals hit the hardest followed by our aging population that simply can’t survive on a 0% interest rate environment.

The US is not the only Country with this base that has become active and vocal.  The U.K has their Trump in Boris Johnson, the current Mayor of London who has gained the same base of support as Trump, here in the US . . . Which leads us to “BREXIT.

BREXIT is growing in popularity and Boris supports BREXIT and he personally is gaining more popularity as a result.  BREXIT is the name describing England’s exit from the European Union and the Euro . . . In June we will find out whether the UK decides to stay in the EU.  There are many obstacles to moving away from the EU, but Boris is a strong personality, a great speaker, and is VERY supportive of leaving the EU and his popularity has grown which says, maybe many in the UK support that move as well?

An Exit doesn’t mean the end of the world for either UK not the EURO, but it will absolutely cause short-term volatility and market concerns.  We are watching this closely.

In the end, with the current data we have, we feel strongly . . . We feel strongly – There will be NO recession in 2016.  We are constantly looking for support for our opinion as well as data that may suggest a contrary or differing opinion than ours to which we would adjust our expectations and refocus our actions.

We are always here for you.  Please reach out to us anytime you feel you need to because we work for you.

Thank you and I look forward to seeing you soon.

Avoid Tax Scams!

Tax scams are on the rise, and you could be at risk as the tax deadline approaches and con artists smell blood in the water.

Some schemes to defraud taxpayers of their cash — especially online ploys — have even surged by 400% this tax season alone.

Do your best to avoid being a statistic by reading some of the most common Tax Season Scams.

Phone scams
• Some fraudsters make aggressive phone calls in which they impersonate IRS agents, threatening police arrest, court action, deportation and license revocation, among other things, in an attempt to trick taxpayers.
• There have been roughly 896,000 contacts, and more than 5,000 victims who have collectively paid over $26.5 million as a result of these scams since October 2013, according to the Treasury Inspector General for Tax Administration.

Identity theft
• Tax-related identity theft takes place when someone uses a stolen Social Security number to file a tax return claiming a fraudulent refund. In fiscal-year 2015, the IRS initiated 776 identity-theft-related investigations; 2,000 identity thieves have been convicted in the past three fiscal years.

Phishing
• Criminals in phishing schemes send fake e-mails or create fake websites looking to steal personal information, such as passwords and Social Security numbers. Fraudsters often pose as people or organizations taxpayers trust or recognize. They may hack an e-mail account and send mass e-mails under another person’s name, or pose as a bank, credit card company, tax software provider or government agency.
• Scam e-mails could also infect computers with malware, unbeknownst to the computer owner, giving scammers access to the device and the ability to track keyboard strokes to gain sensitive login info.

Return preparer fraud
• Taxpayers should be wary of “unscrupulous return preparers” who lure in unsuspecting taxpayers with promises of overly large refunds and then steal private financial information.
• One way to counteract potential fraud is by asking if the preparer has an IRS Preparer Tax Identification Number (PTIN) — paid preparers are required to register with the IRS, have a PTIN and put it on the filed tax return.

Fake charities
• Some groups pose as charitable organizations to get donations from unsuspecting taxpayers and/or steal personal information. Much of the fraud that occurs in this category follows significant natural disasters.
• Taxpayers should look out for charities with names similar to those of reputed organizations and shouldn’t dole out personal financial information to anyone soliciting a contribution. They also shouldn’t give or send cash — rather, use a check or credit card, or a way that provides documentation of the gift

Abusive tax shelters
• Some fraudsters may encourage use of abusive tax shelters and structures as a way to eliminate or substantially reduce taxes. These strategies may take advantage of financial secrecy laws of foreign jurisdictions and availability of credit or debit cards issued by offshore financial institutions.
• Entities commonly used in these tax-evasion schemes include limited liability companies (LLCs), limited liability partnerships (LLPs), international business companies (IBCs) and foreign financial accounts, designed to conceal the true nature and ownership of taxable income and/or assets. If an arrangement uses “unnecessary steps or a form that does not match its substance,” it’s an abusive scheme, the IRS says.

Securities offered through First Allied Securities, Inc. A registered Broker/Dealer, Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. A Registered Investment Adviser. American Retirement Solutions is not affiliated no endorsed by First Allied Securities.

Current Economic Conditions

boggsChristopher L Boggs
October 9, 2014

 

October may be the month to remember for several reasons, currently volatility.graph

The market is concerned about the issues in Europe and China – This is true, however we feel the real issue is, how will the fed react to the issues taking place across the globe.

Let’s discuss Europe and China briefly.

First China.  Have you heard this term, “shadow Banking” by reporters when discussing China’s potential economic woes?  While not exactly the same as our Federal Reserve policy, it has some of the same focus . . . Put money into the economy to push economic growth.

The problem?

If the labor market (and broader economy) would continue to pick up steam, that may increase the chances of the Federal Reserve raising interest rates in the spring of 2015 instead of waiting until the summer.  We have become quite accustomed to low interest rates and easy money in the US.

Printing money is a short-term solution to economic problems and if the underlying issues are not addressed . . . Printing money could have a reverse effect and cause more economic pressures.

China has provided a great deal of money through their Nationalist “Trust Fund” and that fund has provided for a GREAT deal of expansion, growth, and economic boom in China and has had a positive effect on countries that do business with China, whether buying goods or selling to China to aid in their rapid growth.

The current problem? That Nationalist “Trust Fund” is in trouble, threatening to file bankruptcy.  Not good China, not good at all.

Europe is struggling as well.  Italy and France are seeing remarkable slowing in their economy while Germany is on the verge of a third recession in less than six years.

Investors are reacting to this by piling into safe-haven bonds, driving the yield on the 10-year Treasury below 2.3% for the first time in 16 months.  Fear is setting in and we believe setting the stage for panic and short-term corrections.

We have been discussing the idea of a short-term correction and even as of the latest SRS Newsletter we will once again share our feelings that in our opinion, we are closer to a correction than we have been since March of 2009.

But remember that the US continues to see strength when compared to the global economy.

graph2 graph3

The US Deficit continues to reduce.  US Jobs employment continues to strengthen.

We are paying close attention to the opportunities that arise from high fear in the economy and the result of short-term corrections and we will take measures to provide the best benefit possible for our clients on an individual risk budget basis.

AS ALWAYS – Call the office when you have any questions.  We work for you.

***”Yo-Yo stock market” graph from cnbc.com Oct. 9, 2014. “Annual deficits” graph is from Office of Management and Budget/Congressional Budget Office. Monthly Job Creation numbers from Bureau of Labor Statistics.

Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. A Registered Investment Adviser.

AT&T Open Enrollment

Everyone should have received an open enrollment kit for AT&T health benefits and some other correspondence. This has caused a good deal of confusion especially for those that are going through AON to purchase new supplemental in 2015. Below is the information that we have found out as of today. New information continues to come out but we wanted to share with you what we know.

With regards to open enrollment under a company sponsored plan. The company sent this information out to everyone who was covered the prior year. If the retiree and their spouse are both going to be using AON to purchase a Medicare supplemental plan you would still receive this. This is because you have options of adding dependents if necessary. For almost everyone this isn’t an option as you have no dependents to be able to cover. If something has changed and this is something that you may consider doing please reach out to the company soon to find out about eligibility and price. Also, if one of a couple, either the retiree or spouse, is on AON and the other is on the traditional health coverage, you must enroll the non AON covered spouse just as in previous years. The price seems to be different for the retiree and spouse from what we have found out so far, so please check carefully with the company at the time of enrollment for the option that fits you best.

In regards to those going on AON for supplemental Medicare insurance we will be talking at our fall client dinners and lunches about what information was released October 1st. If you have your 2nd call scheduled before our lunch/dinner in your area I recommend rescheduling to a later date so you can hear thoughts on what is available. Also, if you are not able to make the event in your area you are more than welcome to attend another event in a different city. Just call our office for time and dates available. If none of these work for you please call us to discuss the options you have.

Lastly, some of you received a certificate of coverage. There is nothing you need to do with this other than file it away someplace safe. What this says is that you have health coverage with the company plan for all of 2014. This is just something they always send, unfortunately it was ill-timed with all the other changes that they have going on with the health coverage.

As always, we are available to help. Call us anytime you have a questions, we are always happy to help you.

Brent Leigh

October 9, 2014

Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. A Registered Investment Adviser.

2014 Investment Outlook

Risk assets such as stocks and corporate bonds have further to run in 2014—even as a tide of easy money slows.
3 Key Points

1. Growth
Nominal growth is sluggish around the world—yet there
is potential for upside surprises as fiscal austerity fades.

2. Markets
2014 is the year to squeeze more juice out of risk assets.
Be ready to discard the fruit when it starts running dry.

3. Risks
Obvious investment risks are few; hidden ones are plentiful.
Watch (well-meaning) central bankers and rising correlations.
Summary
• Our base case investment scenario, Low for Longer (55% probability), features tepid growth and loose financial conditions. The bullish Growth Breakout (25%) has growth accelerating and liquidity tightening. And the bearish Imbalances Tip Over (20%) highlights things that could go (very) wrong.
• Liquidity provision will grow more slowly in 2014—and markets invariably focus on rates of change as much as absolute levels. Liquidity-crimping measures such as the US Federal Reserve’s scaling back bond buys will be partly offset by the Bank of Japan’s Godzilla-sized asset purchases.
• Should we worry about the Fed’s (gentle) QE exit? It is not going to be a walk in the park, as some policymakers would like to think. We see it more as a triathlon in twilight. Policy words (forward guidance) replacing policy deeds (bond buying) equals a pick-up in rates and currency volatility.
• As Low for Longer grinds on, imbalances grow. One is of particular interest to us as money managers: the potential for markets to overheat. Are we there yet? We do not think so. 2014 is the year to squeeze out more juice from markets—and be ready to discard the fruit when it starts running dry.
• Bonds have long been expensive. The problem for stocks: The numerator of the P/E ratio (price) is driving returns, not the denominator (earnings). Rising correlations between bonds and stocks are making well-diversified, “safe“ portfolios riskier than they appear.
• Diversification is like insurance: You do not need it—until you need it. Consider alternative investments for 2014. Some are real diversifiers (at least in theory). We like market neutral funds and strategies focused on “hard” assets such as infrastructure.

2014 Scenarios

Check out below how we see the economy, financial conditions, markets and companies. Learn how our scenarios are playing out across economies and view our preferred assets in our 2014 Outlook.

SO WHAT DO I DO WITH MY MONEY?®
Big Picture
Helicopter View
We generally prefer equities over bonds, particularly in our base case Low for Longer scenario.

Risk in Safety
Equities and bonds are becoming more correlated. This is making “safe” portfolios a lot more risky.

Alternative Menu
Infrastructure, real estate and other alternatives are real diversifiers—and offer attractive yields in a low-rate world.

Volatility on Sale
It is better to buy an umbrella before the rain. Volatility is cheap and many assets are expensive.
Equities
Equity Value
Equities are not cheap—but they are not (yet) in bubble territory. We generally favor Europe and Japan on valuation.

Yield Caution
US yield plays will wrestle with tighter liquidity. Dividend growers still offer potential, as do non-US dividend payers.

Emerging Idea
Our contrarian idea: Overweight emerging stocks vs. developed. Be selective and favor indirect exposures (multinationals).
Fixed Income
Carry On
Many bonds still look expensive and risky (especially government debt). Go for carry (yield) in a barbell strategy.

Curve Plays
Low rates support short maturities. Tapering fears have hammered many long bonds back to reasonable valuations.

Beware Traffic Jams
Easy to get into, hard to get out of. Liquidity could dry up fast in some credit markets—when you need it most.
As always, please call our office for further discussion on this topic or another item you’d like to discuss.
source – BlackRock 2013

Income Stock

Definition of ‘Income Stock’

An equity security that pays regular, often steadily increasing dividends, and offers a high yield that may generate the majority of overall returns. While there is no specific breakpoint for classification, most income stocks have lower levels of volatility than the overall stock market, and offer higher-than-market dividend yields. Income stocks may have limited future growth options, thereby requiring a lower level of ongoing capital investment. The excess cash flow from profits can therefore be directed back toward investors on a regular basis.

Income stocks can come from any industry, but are most commonly found as companies operating within real estate (through real estate investment trusts, or REITs), energy sectors, utilities, natural resources and financial institutions.

Explanation of ‘Income Stock’

Income stocks are sought by conservative investors who still want some exposure to corporate profit growth. They also have steady streams of revenue that allow for a high level of income payout to investors.

The ideal income stock would have a very low volatility (as the Beta would measure), a dividend yield higher than prevailing 10-year treasury bond rates, and a modest level of annual profit growth. Ideal income stocks would also show a history of increasing dividends on a regular basis so as to keep up with inflation, which eats away at future cash payments.
As always, please call us for further discussions on this topic or anything else you need.

source – investopedia 2011

Why do interest rates tend to have an inverse relationship with bond prices?

At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer examination, it makes sense. An easy way to grasp why bond prices move opposite to interest rates is to consider zero-coupon bonds, which don’t pay coupons but derive their value from the difference between the purchase price and the par value paid at maturity.

For instance, if a zero-coupon bond is trading at $950 and has a par value of $1,000 (paid at maturity in one year), the bond’s rate of return at the present time is approximately 5.26% ((1000-950) / 950 = 5.26%).

For a person to pay $950 for this bond, he or she must be happy with receiving a 5.26% return. But his or her satisfaction with this return depends on what else is happening in the bond market. Bond investors, like all investors, typically try to get the best return possible. If current interest rates were to rise, giving newly issued bonds a yield of 10%, then the zero-coupon bond yielding 5.26% would not only be less attractive, it wouldn’t be in demand at all. Who wants a 5.26% yield when they can get 10%? To attract demand, the price of the pre-existing zero-coupon bond would have to decrease enough to match the same return yielded by prevailing interest rates. In this instance, the bond’s price would drop from $950 (which gives a 5.26% yield) to $909 (which gives a 10% yield).

Now that we have an idea of how a bond’s price moves in relation to interest-rate changes, it’s easy to see why a bond’s price would increase if prevailing interest rates were to drop. If rates dropped to 3%, our zero-coupon bond – with its yield of 5.26% – would suddenly look very attractive. More people would buy the bond, which would push the price up until the bond’s yield matched the prevailing 3% rate. In this instance, the price of the bond would increase to approximately $970. Given this increase in price, you can see why bond-holders (the investors selling their bonds) benefit from a decrease in prevailing interest rates.

As Always, for further discussion on this topic or anything else you need to discuss, please call us or visit our office.

source – investopedia 2009