What is a primary consideration when investing in bonds with respect to inflation?

Investing in bonds involves careful consideration of various factors, one of which is inflation. When inflation rises, it leads to an increase in the general price level of goods and services, which in turn affects the purchasing power of money. This is particularly significant for fixed-income investments, such as bonds, where the interest payments are typically set at a fixed rate.

The correct choice highlights that inflation can erode the real return on fixed-income investments. The nominal interest rates on bonds may remain stable, but if inflation outpaces these rates, the actual purchasing power of the interest payments diminishes. For example, if a bond offers a 5% coupon rate but the inflation rate is at 3%, the real return—that is, the return after accounting for inflation—is only 2%. Therefore, understanding the impact of inflation on real returns is crucial for bond investors who seek to preserve or grow their wealth over time.

In contrast, the other options misunderstand the relationship between inflation and bond investments. While some bonds may react differently to inflation changes, the overall truth remains that fixed-income investments are particularly vulnerable to inflation rates that exceed their yield.