interest rate hike, bond went UP

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sambb
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Joined: Sun Mar 10, 2013 3:31 pm

interest rate hike, bond went UP

Post by sambb » Wed Dec 13, 2017 11:03 pm

interest rate hike announced, but total bond market went up today. Bond prices are not always correlated to interest rates, correct? iy is about expectations ad supply/demand. Despite the mathematical issue.

My point is that just becuase interest rates increase, does not mean that bond funds will go down in value. It can be priced in already.
Last edited by sambb on Thu Dec 14, 2017 6:07 am, edited 1 time in total.

lack_ey
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Joined: Wed Nov 19, 2014 11:55 pm

Re: interest rate hike, bond went UP

Post by lack_ey » Wed Dec 13, 2017 11:42 pm

Bond prices are directly related to the yields on those bonds. There's no direct relationship to short-term benchmark rates.

Everybody went in expecting the Fed funds rate target to be raised 25 bp, which is what happened. That's the baseline universe around which the bonds were priced. If overall economic news, Fed statements about policy and the economy, inflation numbers, etc. indicate a likely lower path of inflation and economic growth going forward than previously expected, then overall bond prices should probably go up (yields down).

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: interest rate hike, bond went UP

Post by livesoft » Thu Dec 14, 2017 4:07 am

Bond princes move well before known interest rate hikes. Only idiots would wait until the day of the interest rate hike to change their bond prices. The rate hikes has been talked about for months, so bond prices have been lower for months.

And did you notice that interest rates are expected to go up three times in 2018? Now that everyone knows that, do you think bond prices will go up much from here? Or will they trend lower? Or will they stay the same?
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FrankLUSMC
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Joined: Tue Nov 28, 2017 1:43 pm

Re: interest rate hike, bond went UP

Post by FrankLUSMC » Thu Dec 14, 2017 8:10 am

livesoft wrote:
Thu Dec 14, 2017 4:07 am
And did you notice that interest rates are expected to go up three times in 2018? Now that everyone knows that, do you think bond prices will go up much from here? Or will they trend lower? Or will they stay the same?
Yes 8-)

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patrick013
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Joined: Mon Jul 13, 2015 7:49 pm

Re: interest rate hike, bond went UP

Post by patrick013 » Thu Dec 14, 2017 9:47 pm

sambb wrote:
Wed Dec 13, 2017 11:03 pm
My point is that just becuase interest rates increase, does not mean that bond funds will go down in value. It can be priced in already.
https://myphotos.mypclinuxos.com/images ... sed660.png

Bond spreads are very average these days so not much mean reversion there
can occur. Some analysts would buy bonds if the current spread is significantly
greater than the historic mean and vice-versa. Some buyers react to any
info others wait till the day after. Who knows. My bonds are mostly ST these
days. Bogle's ST AA is still 50% of total bond AA. Haven't heard otherwise.
age in bonds, buy-and-hold, 10 year business cycle

flyingaway
Posts: 1725
Joined: Fri Jan 17, 2014 10:19 am

Re: interest rate hike, bond went UP

Post by flyingaway » Thu Dec 14, 2017 9:53 pm

The price dropped a lot before the hike, then went up on the day of hike. It is unpredictable, I guess.

JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: interest rate hike, bond went UP

Post by JBTX » Fri Dec 15, 2017 11:23 pm

A short term hike in short term interest rates by the Fed won't necessarily lead to an increase in intermediate or long term market interest rates. First, as mentioned, the hike was probably already factored into the market. But if for some reason it wasn't, a hike in rates could cause bond investors to believe that the federal reserve will continue to raise rates, which may stall the economy and hurt stocks, and cause people to invest in long term bonds, thus pushing long term rates down, as people tend to flock to US Treasurys for safety.

Ironically years ago when there was a serious risk of govt default based on failure to increase debt limit, US treasuries increased (and bond rates went down) as people flocked to their preferred safe haven, US treasuries.

zeugmite
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Joined: Tue Jul 22, 2008 11:48 pm

Re: interest rate hike, bond went UP

Post by zeugmite » Fri Dec 15, 2017 11:32 pm

Come to think of it, what happened to the reverse QE? Is it going on? Where do I check...

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