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Interest rates are...down???
Old 07-11-2018, 05:39 PM   #1
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Interest rates are...down???

"Everyone" knows interest rates have nowhere to go but up, and have been going up for several months now. At least money markets, CDs and other short term rates have been going up.

Just to track long term rates, I bought a little EDV (20 year zero coupon ETF) in November, 2016. Since then, it has been kicking out a dividend of 2.85%, and is actually UP 1% in price, meaning rates are very slightly down since then.

Doesn't make a lot of sense to me. Maybe the bond market seems to think inflation and the economy are not as strong as some would have us believe?
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Old 07-11-2018, 05:50 PM   #2
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This is an indication that investors are worried - flight to quality and plenty of demand willing to accept lower rates for a longer period of time.


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Maybe the bond market seems to think inflation and the economy are not as strong as some would have us believe?
BINGO!

I'm content picking up 5 and 6-year CDs at 3.5%-3.7%.
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Old 07-11-2018, 06:06 PM   #3
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Originally Posted by gcgang View Post
"Everyone" knows interest rates have nowhere to go but up, and have been going up for several months now. At least money markets, CDs and other short term rates have been going up.

Just to track long term rates, I bought a little EDV (20 year zero coupon ETF) in November, 2016. Since then, it has been kicking out a dividend of 2.85%, and is actually UP 1% in price, meaning rates are very slightly down since then.

Doesn't make a lot of sense to me. Maybe the bond market seems to think inflation and the economy are not as strong as some would have us believe?
The short-term and long-term durations have quite different economic outlooks at the moment. The longest rates have been creeping down, while short rates have jumped considerably over the past couple of years.
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Old 07-11-2018, 06:11 PM   #4
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The short-term and long-term durations have quite different economic outlooks at the moment. The longest rates have been creeping down, while short rates have jumped considerably over the past couple of years.

That's because the Fed controls the short term rates dictating them, while the market controls long term, and as such those rates become a matter of market/investor perception.
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Old 07-11-2018, 06:45 PM   #5
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That's because the Fed controls the short term rates dictating them, while the market controls long term, and as such those rates become a matter of market/investor perception.
The Fed is not controlling the 2 year to 5 year section of the yield curve directly. There must be some short-term inflation and economic strength perceptions that are driving that section up.
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Old 07-11-2018, 07:16 PM   #6
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It's not unusual. Fed begins to raise rates. Market sees this, inflation fears subside. Long bond rallies reflecting reduced inflation expectations.
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Old 07-11-2018, 07:50 PM   #7
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That's because the Fed controls the short term rates dictating them, while the market controls long term, and as such those rates become a matter of market/investor perception.
The fed controls the rate at which banks can borrow. Thatís it. Every other rate is market driven.
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Old 07-11-2018, 08:29 PM   #8
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The short-term and long-term durations have quite different economic outlooks at the moment. The longest rates have been creeping down, while short rates have jumped considerably over the past couple of years.
This is called approaching an inversion, right? Isnít this supposed to be a harbinger for a nasty bear market?
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Old 07-11-2018, 08:40 PM   #9
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Here is a recent article on interest rates. https://www.google.com/amp/s/www.blo...e-but-it-won-t
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Old 07-11-2018, 08:41 PM   #10
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It’s an opinion piece, so don’t shoot the messenger.
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Old 07-11-2018, 09:59 PM   #11
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This is called approaching an inversion, right? Isn’t this supposed to be a harbinger for a nasty bear market?
It has to flatten first before it can invert. We don’t know ahead of time whether or not it will invert. It could steepen instead.

Just a short while ago we had the 10 year above 3.1%, the 5 year at 2.92%. The Fed is now unwinding (not reinvesting) $40B a month from its balance sheet. Seems like this should be putting more pressure on the long end. I guess tarriff concerns have been pushing long rates down recently.
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