Article: http://business.financialpost.com/2011/05/05/profit-taking-window-opens-in-bond-sector/
Summary:
The article that I read talked about how investing in treasury bonds could be profitable because they have reached a very low percentage yield. The lower the yield is the more profitable and preferable it is for bond traders. Here is an example to explain the situation. Let's say you buy a $1000 bond and you get 10% on return. However, when the bond drops to $900 they will have to increase the rate to 11.11% in interests so it matches up to the previous $1000 bond that you bought. So, if this continues you will be earning a lot in interest. If that's the case what determines the percentage yield of the bond? Inflation is a key factor in determining the yield of the bond. As inflation rises, the bond's profitability decreases. Due to economic instability, both the US and Canada are reluctant to raise interest rates and cause inflation, so this is a good time to cash in those bonds. Here are some hard numbers about ten year US treasury bonds; they have hit an all-time low yield of 3.22% on Wednesday May 4. This will also benefit the Canadian bond market, because there is a lot of uncertainty in the US economy. The ten year government bond for Canada was at yield of 3.211%, so you can see why it would be more favourable over the US treasury bond.
Connections:
This article relates to the book in terms that it talks about a type of bond, treasury bonds. To start it off, bonds are like purchasing the government's debt. However, there is a bright side to it! When, you purchase a bond, they promise to pay all of it back on a certain date called the maturity date. To top it off, they will pay you a specified interest rate on your money, so you will get richer as an incentive to lend them money. Banks usually sell bonds to they can decrease the purchasing power of the people. This will lead to less buying, less production, less jobs, and higher prices for goods. By doing this, the bank would have reduced the money supply in the country. There are also treasury bills, which are promissory notes that promised a certain amount of money. This are short-term "bonds" that hold no interest rates, so you won't benefit from them.
Reflections:
After reading and analysing bonds, I think that they might be a worthy investment to uptake. If enough people are willing to buy bonds, especially in developed countries that have a lot of debt, the whole economy would benefit from it. When the economy prospers, it will lower inflation rates which will increase the profitability of the bonds. At the end, you might end up richer than you started since the treasury bond's interest rate will increase to match up to your previous bond amount in case a rise in inflation occurs. However, there are some people that are risk takers. When the percent yield is low, they still wait for it to be lower before they are willing to cash in their bonds. Even if bonds are a worthy investment, you have to have an understanding of the economy and keep on top of it to earn the most profit on your bonds. So consider purchasing a bond, who knows you might be in luck.
Your article is very interesting and I agree that purchasing bonds are a good investment, not only for yourself, but for your country's economy. This article closely relates to the chapter and you got all of the connections, I think. Your article mentions inflation many times throughout it. Part of your connections could include the "flow of money in the economy", or "the velocity of circulation of money in the economy". This goes back to the Fisher Equation of exchange. (MV = PT)I think that's the formula, but your article is a good example of money creation and circulation in our economy. I think you did a great job. (:
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