9 things to consider before investing in bonds in high interest rate scenario

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In a high-interest rate environment, investing in corporate bonds or non-convertible debentures (NCDs) or government bonds (also called G-sec or sovereign bonds) with good yield and credit rating can be a smart move.

To tackle inflation the central banks world over increase interest rates to control money supply in the economy. The US 10-year Treasury yield hit 4.80% which is the highest in 16 years. In fact, our Indian 10-year G-sec bond yield hit 7.2%.

The Nifty 50, which serves as the benchmark for the Indian stock market, has delivered a 14% return in the past year, indicating that investing in stocks for the long term can be a wise choice. Nevertheless, it's also prudent to allocate a portion of your capital to bonds or other fixed-income securities for a balanced investment approach especially when interest rates are high.

However it's essential to start with thorough research and understanding of the bond market.

So, what exactly are bonds? They are basically financial instruments which represent a form of debt or fixed-income security. It means when you as an investor are buying or investing in fixed income securities you are actually lending money to the government or corporates and in return you are receiving a fixed interest rate at regular intervals. Therefore, bonds are considered a relatively conservative investment compared to investing in stocks.

So, when in a high interest rates scenario, investing in fixed income securities seems lucrative for many investors, but one should understand the risk and reward before making investment decisions. You also need to understand that bond prices and interest rates move in opposite directions. So when interest rates went up, the bond prices went down. Now in future