You always see in the press that when there's interest rate rises or talk of
inflation it's going to be bad for bonds but no one seems to explain to you why
that is. Using this chart again from a previous video bonds offer a fixed
income typically this is fixed the agreed amount of interest you get paid
each year. Of course if you think about that if you compare that to the interest
rate on the Bank of England then this return is relative. If interest rates go
up then this interest looks comparatively worse so therefore people
don't want bonds and therefore they will start to sell them. Equally inflation
means that the Bank of England will tend to increase rates so therefore you get the
same effect again. So generally speaking bonds don't perform well in an interest
rate rising environment and equities tender fare better.
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