Don't you think the party is slowly coming to an end? ...a few weeks ago I was still optimistic - now I'm actually thinking of parting with them and switching to short-dated bonds - the yield curve is still inverted. I therefore think that the potential for long-dated bonds is relatively limited
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11Mon
@Moneymoney Joker??? The train has just left the station. Short-term interest rate considerations are completely irrelevant to the strategy. That's not what this game is about. You just take them with you. Giving up the chicken now in order to have a chicken nugget at the end of next year is, with respect and no offence intended, simply stupid. Just look at the performance of the 100-year Austrian bond <security:n/a:AT0000A1XML2>. It ramped up to 230% when interest rates were low and then plummeted to 67% as interest rates rose. Now it is going in the other direction again. Probably not to 200+%, because interest rates will not fall as much. But I couldn't care less whether I get 0.5% more interest next year.
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@kleberj so I'm a joker, but the one regarding my comment. I believe that little will happen to bond yields when the Fed actually starts to cut interest rates next spring - it's already priced in. I only see a sharp rise in prices in the event of a deep recession. And I cannot imagine that we will see negative interest rates. And don't forget the currency risk.
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@Moneymoney Well, it won't stay at 0.75%. 2% over 30 years is 81% with compound interest. 4% makes 224%. This will ultimately be reflected in the bond price, although perhaps not to the same extent. I have read a study that calculates a price increase of 70% for 30-year US bonds with a 3% fall in interest rates. For 20-year bonds and less interest rate decline, correspondingly less. I no longer remember that. But we can agree to disagree. I'm not a preacher! 😂
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@kleberj I don't understand the 0.75 percent. The 20-year top was over 5.5 percent - now we are below 4.2 percent - so the market has already priced in a reduction of over 130 basis points. ...I am also curious to see how the dollar will behave in relation to the euro. Perhaps it will rise to 1.20 - the long-term average - which would also have a negative impact on your investment. A few weeks ago I was also very optimistic. Now I'm more neutral - but after this rise, I think there will soon be a small countermovement
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11Mon
@Moneymoney the 0.75% are the announced reductions next year of 25 basis points each. But you're talking past each other. You are talking about the coupon and @kleberj is talking about the price increase due to the interest rate cuts. And this price increase cannot be priced in, as it can only happen when interest rates fall in real terms. Then the price must reflect the new interest rate reality.
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@Wuestenschiff Unfortunately, you are mistaken. The price of the above-mentioned bond has already risen from 100 to 111. The market is not waiting for the actual implementation - hence the inverted yield curve. You only get the current central bank interest rate on very short-dated bonds - that's why I'm currently buying US bonds with a term of 0-1 years. There are 5.4 percent without price change - but with currency risk ...oh yes, he meant the dot plots 👍🏻 with the 0.75 percent. ...the central bank rate is 5.25 - 5.5 - minus the dot plots we are at 4.5 - 4.75. The 20 year is at 4.195. In a normal yield curve the short term should be much lower at around 3.5 percent - the FED is communicating 0.75 percent and the market is optimistically pricing in 2 percent. Hence my statement that the party is over - or we are in for a very hard landing
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11Mon
@Moneymoney @kleberj
I have a question about this: What determines the price of bonds (apart from rating and maturity etc.)? It's not just interest rate policy, is it? Supply and demand also play a role, don't they? So could the interest rate cuts already be largely priced in due to the high demand? Can you please enlighten me? Thank you 🙋♂️
I have a question about this: What determines the price of bonds (apart from rating and maturity etc.)? It's not just interest rate policy, is it? Supply and demand also play a role, don't they? So could the interest rate cuts already be largely priced in due to the high demand? Can you please enlighten me? Thank you 🙋♂️
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@ChrisBizz yes supply and demand and this changes due to the economic development, inflation, rhetoric and the actual actions of the central bank
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@Moneymoney Thank you for your reply 👍
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@kleberj I am now back in the long-dated bond market, although yields are bound to rise a little - the market had simply priced in too many interest rate cuts already
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