Best Bonds to Own in Inflation

Which are the Best Bonds to Own during Inflation?

There are basically two varieties of Bonds – Government Bonds & Corporate Bonds.

As a rule, The Government Bonds are safer so it is advisable to own the Government bonds. However, during the time of inflation, it is advisable to prefer those bonds which give you at least 2% more return than the rate of inflation. Weather its a government bond or it’s a corporate bonds.

This is because the Actual Return = Return offered by Bonds – Inflation.

Say for Example, if the Inflation is 4% and some bonds are giving you 6% return than the actual return will be +2% but if the inflation is 8% than the same bonds will give you –2% return. So at that time it is advisable to invest in those bonds which give you at least 10% return.

Thus, the choice of bonds is mainly depending on 2 factors.

01) Rate of Inflation

02) Bond Rating

Yes, The second thing you should check is the bond rating. Usually AAA and AA Rating bonds are advisable for the investments. Lower the bond rating, higher will be the return but the higher will be the chance of default and vice versa.

So the choice of Best Bonds to Own in Inflation depends on the two key factors – Inflation Rate & the Bond Rating…!!!