Senior Trader at JMMB, Andre Reid, says more opportunities may be coming for bondholders as prices may continue to decline if the US Federal Reserve continues on its aggressive interest rate hike.

The Federal Reserve, which is the central bank for the United States has increased interest rates 10 times since the start of the pandemic to help ease inflation.

Speaking on Taking Stock with Kalilah Reynolds, Reid explained that with interest rates on the rise, bond prices have been trending lower, resulting in a greater yield for investors.

Yield is a general term that relates to the return on the capital you invest in a bond. 

Reid noted that while the Feds temporarily paused interest rate hikes in June, there will likely be another increase when the committee meets again on July 26. 

Central banks globally have been raising rates to combat higher inflation.

“At the consumer level what had happened is that Governments had provided grants and other stimulus to citizens adding cash to an already fairly liquid system,” the Equity Trader explained. 

He noted that the supply chain and logistics issues during the pandemic resulted in a lack of productivity and therefore a shortage of goods.

“Out of these easing programs came the issue that we’re faced with today. There’s too much money chasing too few goods, leading to higher inflation,” he added.

Reid said that raising interest rates is intended to cool consumer spending bringing inflation down to a level that is desired by central banks.

The increased rates also affect the price of bonds because as interest rates rise, some investors no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.

The trader said that with the Fed likely to increase rates at least one more time this year, some investors may view this as a good time to invest in them.