Reasons for Selling Bonds

Most bond investors are in it for the long haul, meaning for the term꧑ of the bond, but there are several good reasons for selling bonds before they mature. They include:

• Selling bonds because interest rates are about to increase, making your existing bonds less valuable.
• Selling bonds because its issuer has become financially unstable, raising the risk that it will default on its payments.
• Selling bonds to take advantage of a current upswing in its market value.

Investors buy bonds because they are a "safe" investment, at least in comparison with stocks. The investor buying bonds is assured of a series of payments in a set amount over a set period of months or years.

But if you invest in bonds, it's worth keeping an eye out for these signals that it's time to sell your bonds and reinvest your money.

1. Interest Rates Are Set to Rise

The most significant sell signal in the boꦛnd ma𝄹rket is an indication that interest rates are about to rise significantly.

The value of bonds on the open market depends largely on the coupon rates of other bonds. An interest rate increase means that current bonds – including the ones you own – will lose value as newer bonds at higher rates become available.

Watch the Fed

Pundits, analysts, and anyone with a social media account speculate about how and when the 澳洲幸运5官方开奖结果体彩网:Federal Reserve will raise rates. If you sell your bonds as soon as someone hints൩ at th🔜e word "hike," you may be jumping the gun.

Instead, keep a close eye on announcements after the meetings of the Federal Open Market Committee (FOMC). The FOMC decides on the future of U.S. interest rates at these meetings, so take any definitive announcements from the FOMC seriously.

When the market consensus is that a rate increase is right around the corner, it's time to sell and reinvest the proceeds in higher-paying bonds.

One caveat applies to short-term holdings or those that are near maturity. If your bonds have less than a year until maturity, the 澳洲幸运5官方开奖结果体彩网:interest rate risk is minimal since you've already received most of the c🐲oupon payments.

2. The Issuing Entity Seems Unstable

Another good reason to 澳洲幸运5官方开奖结果体彩网:liquidate your bond holdings is financial instability in the company, govern🐟ment, or municipality that issued the bonds.

The appeal of bonds is that they generate guaranteed income. That makes the credibility and solvency of the issuer a primary concern. If your bonds are downgraded by one of the credit agencies or if it even looks like they might be downgraded, it's time to sell. If the issuer declares 澳洲幸运5官方开奖结果体彩网:bankruptcy, you 🔥are likely to rღecover only a portion of your investment.

Check the financials of the companies or governments th💧at issued your bonds regularly and liquidate your holdings before the real trouble starts.

3. The Market Price Is Unusually High

Like stock traders, active traders of bonds often look to 澳洲幸运5官方开奖结果体彩网:technical indicators for buy and sell signals. To maximize returns, it is important to have set rules about how much prof💧it you expect and how much of a loss you are willing to take.

Though holding bonds until maturity can be moderately lucra🐲tive, you might be able to generate bigger gains by selling when their market value is high, especially if you've held the bond for sevไeral years and have benefited from its coupon payments.

By keeping an eye on tꦰhe average market price of your bond oveဣr both short- and long-term periods, you can pinpoint the moments when the price of your bond is highest and sell before it moves back down toward the mean.

Tools for Tracking Bond Prices

Some bond traders use a 澳洲幸运5官方开奖结果体彩网:roll-down return strategy to sell bonds as their price increases🐼. With this strategy, the price usually increases as the bond nears ma𒀰turity.

Like stock analysis, using an interactive charting tool makes this much easier. Look for moments when the short-term 澳洲幸运5官方开奖结果体彩网:simple moving average (SMA) crosses up through the long-term SMA. This indicates that the current selling price for your bond has been conꦍsistently higher in recent days than it has been within your chosen long-term window.

You should always do a 澳洲幸运5官方开奖结果体彩网:cost-benefit analysis before any trade. 𒉰If the holding period return generated by selling now is equal to or greater than if you held it until maturity, it's time to sell.

The Bottom Line

Like most investments, bond investing requires some follow-up. The values of all bonds fluctuate as interest rates change. The values of some bonds can change for the worse if the issuer hits a period of financial unc𓃲ertainty.

You can make the most of your bonds 🔯investments by keeping an 🐎eye out for changes that affect their values. Be ready to sell and reinvest your money into other bonds or other investments that are paying better.