Question

After "Bonds Aren’t as Safe as You Think" by Steven Grey was written, the Federal Reserve, as part of its forward guidance, has committed to keeping Treasury rates very low for a long time. Does this change how we feel about bonds? What about corporate bonds?

Answer 1

Federal Reserve has agreed upon keeping treasury rates very low as per their part of Forward guidance for a longer period of time and that even does not contradict the theory that bonds are not safe as you think because even the treasury bills which has been issued by the the Federal Reserve has interest rate risk associated with them and it is believed that they are risk free because they are supported by the government but it should be not completely believed that bonds are risk free because they will be having a problem at the time of the repayment when the long-term treasury bonds are to be redeemed because the Government Gross Domestic Product to Debt has significantly decreased and United States economy is having a high amount of credit so one should not be completely certain that all the debt should be paid off and even default of one sovereign debt can trigger a whole lot of collapse so one should not be feeling that bonds are completely risk free.

Corporate bonds are more risky than the treasury bonds and corporate bonds are backed by the company survival capacity and repayment ability in the long term but there is a sudden shift in economic cycle nowadays and companies are not surviving for the longer period of time so bonds cannot be safe in such a situation when the company is going bankrupt and hence I am highly sceptical about investment into corporate bonds because I feel that this corporate bonds are highly risky.