Yield curve is currently inverted, do you go long or short durations ?
short durations
short
short durations because short term bonds are issued with higher interest rates then long term bonds
Iwona pass Wrote: ------------------------------------------------------- > short durations because short term bonds are > issued with higher interest rates then long term > bonds I think your recommendation should be based on what will happen next.
If its inverted ST Rates are higher than LT Rates, hence I would go Long Duration expecting the Fed to decrease ST Rates b/c of impending Recession and hence a Long Duration will be mroe sensitive and I will gain more than a Short Duration. Just my 2 cents.
bigwilly Wrote: ------------------------------------------------------- > If its inverted ST Rates are higher than LT Rates, > hence I would go Long Duration expecting the Fed > to decrease ST Rates b/c of impending Recession > and hence a Long Duration will be mroe sensitive > and I will gain more than a Short Duration. Just > my 2 cents. umm when curve is inverted LT rates are lower then ST rates, It happens before recession. Later fed cuts rates and market starts to expect recovery so LT rates start to climb up. You would lose on LT bonds that way. You would by LT bonds in late stages of expansion when LT rates top out ( i think it happens then). ST rates will top out during slow down
Look at T-bill returns since November, it has been quite impressive
If the YC is inverted, the Fed will reduce Interest rates — We agree on this When the Fed reduces Interest Rates the ST end of the YC is going to decrease and Bodn prices are going to Increase. Therefore I would choose the Higher Duration bonds to pick up more of this decrease in Interest rates.
high duration bonds => LT bonds, there’s no such thing as a high duration short term bond you’ll see the yield curve normalize, meaning Short term bonds will rally and long term bonds will fall or underperform
Yes I know about the 3M t-bills that bottomed around 0.8%, if I recall correctly and now are up around 1.9%. I guess I misinterpreted teh question. I would go the longer duration bonds in the ST portion of the YC. Say 3M - 2Y portion. I could be wrong since I dont bathe in Fixed Income all day, but What has been teh return on a 2Y bond vs a 3M t-bill since November, don’t feel like looking it up on Bloomy.
No. Bonds on the ST end of the curve will increase in price while the LT end will decrease in price since the inversion is returning back to normal. Now if you had a parallel shift down in int rates i would wanna be sitting on the long end.
Thetank…I’m referrign to “Higher Duration” bonds in the ST portion of the YC. Say a 2Y vs a 3M.
if Fed cuts i don’t think you can assume that long end of the curve comes down - - it may, but could argue that market will think “inflation” longer term and rates may even increase on long end - - no doubt fed cuts mean short end falls a lot of funds out there right now with curve steepeners counting on this to happen . . .
yep, the best bond in this scenario would be zero-coupon bond with short duration, both short-duration and zero-coupon feature will perform most favorably in the decreasing rate environment of the short-term end of the yield curve
bigwilly Wrote: ------------------------------------------------------- > Thetank…I’m referrign to “Higher Duration” bonds > in the ST portion of the YC. Say a 2Y vs a 3M. a yield curve is not a 3m - 2yr, it s 1yr 5 yr 10 yr 30 yr yield curve…
^Dude what the F are you talking about, last time I checked it included the 3M and 2Y. Also, If we look at 10/31/07 to 3/31/08. The 3M Yield went from 3.92% to 1.32% or a decrease of 2.60% with a 0.25 duration that would indicate using Duration a 0.65% return. The 2Y Yield went from 3.95% to 1.59% or a decrease of 2.36% at 1.85 Duration a 4.37% return. So by going the longer Duration in the Short-term portion of the YC, I picked up 372 additional bps based on Duration calc. So now am I off my rocker, if I am please kick me off.
bigwilly Wrote: ------------------------------------------------------- > ^Dude what the F are you talking about, last time > I checked it included the 3M and 2Y. Also, If we > look at 10/31/07 to 3/31/08. The 3M Yield went > from 3.92% to 1.32% or a decrease of 2.60% with a > 0.25 duration that would indicate using Duration a > 0.65% return. The 2Y Yield went from 3.95% to > 1.59% or a decrease of 2.36% at 1.85 Duration a > 4.37% return. > > So by going the longer Duration in the Short-term > portion of the YC, I picked up 372 additional bps > based on Duration calc. > > > So now am I off my rocker, if I am please kick me > off. you are right but 2y is still short term 
long term is 30y. Check return on 30y vs 2y please.
^ I know that. I misinterpreted the question at first and meant the LONGER DURATION Bonds within the Short-Term portion of the YC. I agree with not buying a 10Y-30Y bond.
bigwilly Wrote: ------------------------------------------------------- > ^ I know that. I misinterpreted the question at > first and meant the LONGER DURATION Bonds within > the Short-Term portion of the YC. I agree with > not buying a 10Y-30Y bond. ya ya ya 