Abstract
The high and volatile inflation rates of the 1970s have increased greatly the perceived risks of investing in fixed-rate bonds. Longterm yields on dollar bonds, which started the decade at near 7 per cent, finished the decade at near 14 per cent; sterling bond yields moved from 9 per cent to near 17 per cent over the same period. Fixed-rate bonds, once viewed as near-riskless assets, ended the decade as highly volatile investments.
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Notes and References
For evidence on deviations from purchasing power parity, see H. Genberg, ‘Purchasing Power Parity under Fixed and Flexible Exchange Rates’, Journal of International Economics, vol. 8, no. 2 (May 1978) p. 247–76.
See M. Friedman and A. Schwartz, A Monetary History of the United States 1867–1960 (Princeton, 1963 ) pp. 25–9.
See P. H. Lindert ‘Key Currencies and Gold 1900–13’, Princeton Studies in International Finance 1969, for a description of how the Agadir crisis of 1911 led to a simultaneous rise of interest rates in European reserve centres.
For details, see Merril Lynch, International Research vol. 2, (21 May 1980).
See Drexel, Burnham, Lambert’s prospectus for the issue of $25 million 84 per cent Silver Indexed bonds, due April 1995, for Sunshine Mining Company.
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© 1982 Brendan Brown
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Brown, B. (1982). Bond Markets. In: A Theory of Hedge Investment. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06103-7_7
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DOI: https://doi.org/10.1007/978-1-349-06103-7_7
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