Bond prices down
I'm 88 and two years ago I withdrew my life savings of $15,000 from a savings account paying 6 percent and bought AAAA-rated corporate bonds paying 8 7/8 percent; I needed mor eincome to keep up with inflation. Recently I called my broker to ask the bonds' value. He said they were now worth only $10,500. Are prices for AAAA bonds ever likely to recover? Should I cash them in now in case they should become worthless or hold on? -- E.P.
Highly rated bonds are not likely to become worthless unless everything else in the United States turns up worthless, too. However, inflation brings about many distortions in our financial affairs, including high interest. When long-term bonds are selling at interest rates near 13 percent, your bonds' 8 7/8 -percent interest is no longer competitive at their face value. Thus, their prices are discounted to make the 8 7/8-percent rate competitive.
I suggest that you hold onto the bonds, as they are paying close to 9 percent. Later when interest rates decline, you might wish to trade into something else. And remember that for two years you have been getting almost 50 percent more income than you were getting from the savings account.