Can we expect interest rates to start going up in the near future?
Ken Volpert: That’s largely up to the Federal Reserve, which has slashed its targets for short-term lending rates dramatically over the past two years to help revive the economy. As recovery takes hold, it’s reasonable to assume the Fed will gradually move its targets upward in order to head off inflation fears. But few economists are expecting dramatic action in the near term, and I expect rates will remain near current levels through most of 2010. How do interest rates affect bond returns? As interest rates rise, bond prices fall, and vice versa. The cause of rising interest rates (falling prices) in bonds is the heavy supply of borrowers and a scarcity of lenders. If there is heavy demand for borrowing and few willing lenders, interest rates rise. Since bond prices and interest rates generally move in opposite directions, the decline in interest rates has supported bond prices. Not surprisingly, investors poured money into money market funds during the 2008 stock market downturn due
