Does it make sense to take advantage of future interest rate cuts with long-term bonds?

[minhducyahoo]

During the latest FOMC last Wednesday

Fed Signals Higher-for-Longer Rates With Hikes Almost Finished (Bloomberg)

https://www.bloomberg.com/news/arti...-hikes-almost-finished?embedded-checkout=true (no paywall)

the FED said that interest rate increases are coming to an end, but that rates will remain high for some time to ensure inflation can return to target (by 2026).

Current Interest Rate projection

https://imgur.com/CrTExpG

Federal Funds Effective Rate (From 2000 to Today)

https://imgur.com/RWdrhut

Question:

Would it make sense to invest in long-term bonds now to take advantage of lower interest rates in the future?

Of course it is not a given that history will repeat itself, like from 2007 to 2008, but I believe that the current interest rate cannot be maintained for too long in the future given the effects on the economy of such a high rate and that sooner or later it will have to be lowered.

 

[mab_0n3]

@minhducyahoo That is exactly what i did, given it is the highest rate for 30year treasury since 2007. However, you should also account the possibility that inflation might sticky in the long run, and the central banks are actual doing the quantitative tightening, both could push yield even higher.

 

[inkarpathos]

@minhducyahoo You need to separate nominal from real interest rates and the opportunity cost of capital.

 

[callie1451]

@minhducyahoo I did it with a small % of my portfolio as speculation, worst case I get 5% return for many years. I chose bonds with the highest yearly yield (not looking for just capital gain like zero coupon) to have some money back in case this investment goes in red zone

 

[therealone]

@minhducyahoo I did just that, bought an ETF for 20+ years maturity US government bonds. We will see, how it plays out!

 

[worshippraylove]

@therealone UCITS etf?

 

[therealone]

@worshippraylove Yes, you can only buy UCITS ETFs here in the EU.

https://www.justetf.com/en/etf-prof...Type=Government&from=search&isin=IE00BD8PGZ49

 

[inkarpathos]

@minhducyahoo NO

 

[clesportsfan]

@inkarpathos Please explain

 

[ibloggospel]

@clesportsfan What do you mean, this the exact level of explanation to be had in a sub like this.

His username is enough proof.

Back to actual advice, trying to beat the market is 99% dumber than gambling.

Naturally, for ego thrill seekers, the allure is there.

 

[inkarpathos]

@ibloggospel lmao

 

[tigerlily77]

@minhducyahoo If longterm rates keep rising, which they did in the past weeks, there is little to gain from such a trade. Interest rates staying higher for longer is the key here.

I would mostly allocate to bonds to reduce risk and at least the risk of rising rates is significantly lower than two years ago. Additionally bonds are a good source of diversification in a crisis, when rates will go down sharply.

 

[nobeardlady]

@minhducyahoo If you're wrong you'll lose a lot of money. Please don't think you're th first person to think of this trade. This is the type of speculation the biggest hedge funds engage in.

 

[shanekeeslar]

@nobeardlady If you invest in sovereign funds that are pretty much guaranteed not to default, how do you lose money if you hold to maturity? You may not gain as much money as if you invested in equities, but its pretty much a guaranteed return.

 

[nobeardlady]

@shanekeeslar The bond value will drop tremendously if long term rates keep rising. Sure, your yearly return is guaranteed to be whatever rate you currently buy it at. But to extract all that value you'll have to wait out the bond until maturity, which could be 30 years