Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. First, the Federal Reserve can raise or reduce the fed funds rate, which has a ripple effect throughout the interest rate environment, such as impacting the rates you pay on loans from the bank. Second, supply-and-demand forces in the bond market can move interest rates. When more traders want to buy bonds, for example, bond issuers don’t have to pay as much, so interest rates fall. As funds sell bonds at a loss, they reinvest the funds at higher rates. Investors may push a bond lower due to their calculations as well as plain old-fashioned fear, though neither method ends up having the relatively mathematical precision of prior methods. The concern is that as rates rise, the value of existing bonds go down. A move in the direction of overall interest rates, such as what happened in 2022, will affect bond prices. It reflects market expectations of future interest rate fluctuations over varying periods of time. Owning a bond is essentially like possessing a stream of future cash payments. Those cash payments are usually made in the form of periodic interest payments and the return […]