Bond Investment Strategies
Using bonds to invest for total return, or a combination of capital appreciation (growth) and income, requires a more active trading strategy and a view on the direction of the economy and interest rates. Total return investors want to buy a bond when its price is low and sell it when the price has risen, rather than holding the bond to maturity.
Bond prices fall when interest rates are rising, usually as the economy accelerates. They typically rise when interest rates fall, which usually takes place when the Central Bank or authority for monetary policy is trying to stimulate economic growth during or after a recession. Within different sectors of the bond market, differences in supply and demand can create short-term trading opportunities.
Various futures, options and derivatives can also be used to implement different market views or to hedge the risk in different bond investments. Investors should take care to understand the cost and risks of these strategies before committing funds. Consult a financial advisor.
Some bond funds have total return as their investment objective, offering investors the opportunity to benefit from bond market movements while leaving the day-to-day investment decisions to professional portfolio managers.