Guessing CD and Treasury rates going forward

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hoops777
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Guessing CD and Treasury rates going forward

Post by hoops777 »

After the fed meeting today I am wondering what you all think CD rates and treasuries will be at in the next 12 months.

I understand nobody knows but I also know there are a lot of smart people here who can make an educated guess.

I have a lot of CD’s and treasuries maturing in the next 4 to 10 months that I would like to make longer term so am hoping for some good rates.
K.I.S.S........so easy to say so difficult to do.
rockstar
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Re: Guessing CD and Treasury rates going forward

Post by rockstar »

Higher. I feel like 50-100bps more seems reasonable. But I'm buying here on the short end.
jebmke
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Re: Guessing CD and Treasury rates going forward

Post by jebmke »

I have found that even the most knowledgeable people in the industry are usually wrong. Any strategy or tactics that are founded on guessing interest rates is doomed to fail in the long run - for most people.
When you discover that you are riding a dead horse, the best strategy is to dismount.
fabdog
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Re: Guessing CD and Treasury rates going forward

Post by fabdog »

I understand nobody knows but I also know there are a lot of smart people here who can make an educated guess.
There are lots of very smart people making their best educated guess, which results in the yields seen in the market. It is unlikely anyone person can consistently guess these movements correctly. Thus the issue... how do you choose among the educated guesses you'll see here, and other places?

Mike
yules
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Re: Guessing CD and Treasury rates going forward

Post by yules »

hoops777 wrote: Wed Sep 21, 2022 1:20 pm I understand nobody knows but I also know there are a lot of smart people here who can make an educated guess.
An educated guess, even by self-professed smart people, is still a guess!

Yules
Robot Monster
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Re: Guessing CD and Treasury rates going forward

Post by Robot Monster »

Best not to speculate, and encourage others to time the bond market.
rascott
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Re: Guessing CD and Treasury rates going forward

Post by rascott »

hoops777 wrote: Wed Sep 21, 2022 1:20 pm After the fed meeting today I am wondering what you all think CD rates and treasuries will be at in the next 12 months.

I understand nobody knows but I also know there are a lot of smart people here who can make an educated guess.

I have a lot of CD’s and treasuries maturing in the next 4 to 10 months that I would like to make longer term so am hoping for some good rates.
Well the Fed just told you they now expect the terminal Fed Funds rate to be 4.6% sometime next year. Make your best educated guess based off of that educated guess.
ChinchillaWhiplash
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Re: Guessing CD and Treasury rates going forward

Post by ChinchillaWhiplash »

Will go up in the near future. How much remains to be seen. If the economy cools off too quick things can go the other direction or remain steady.
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whodidntante
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Re: Guessing CD and Treasury rates going forward

Post by whodidntante »

This is what will happen with rates going forward.
If you stay short because you are a duration chicken, rates will stay flat and then fall before you get in.
If you buy long duration because you are scared that rates will fall, rates will continue to skyrocket after you buy.
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hoops777
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Re: Guessing CD and Treasury rates going forward

Post by hoops777 »

Ok then.
K.I.S.S........so easy to say so difficult to do.
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jeffyscott
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Re: Guessing CD and Treasury rates going forward

Post by jeffyscott »

I think the yield curve can tell you what the market expectations are, but I don't really know exactly how that's done. My experience matches whodidntante's description, so I'm not really very motivated to figure it out in detail :mrgreen: .

The expectations for the Fed rate is easy to find and that's currently seen as topping out around 4.5-5% next spring. Meanwhile, 10 year treasuries are selling at about 3.5% and 5 year at about 3.75%. So clearly the short term rate is not expected to stay at anything like 4.5% for long. The Fed "dot plot", shows around 2.5% as the Fed's "longer run" expectation.
And so it goes, And so it goes, And so it goes, And so it goes, But where it's goin' no one knows
Coopsdaddy
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Re: Guessing CD and Treasury rates going forward

Post by Coopsdaddy »

Is buying thru fedlity a smooth process?
Would like to see 5%
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hoops777
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Re: Guessing CD and Treasury rates going forward

Post by hoops777 »

whodidntante wrote: Wed Sep 21, 2022 5:41 pm This is what will happen with rates going forward.
If you stay short because you are a duration chicken, rates will stay flat and then fall before you get in.
If you buy long duration because you are scared that rates will fall, rates will continue to skyrocket after you buy.
Best answer award :D
K.I.S.S........so easy to say so difficult to do.
jwfails
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Re: Guessing CD and Treasury rates going forward

Post by jwfails »

I got a jumbo 12 month CD today for 4.15%.
acegolfer
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Re: Guessing CD and Treasury rates going forward

Post by acegolfer »

Here's 10-yr T-note futures price. https://www.cmegroup.com/markets/intere ... uotes.html

The farthest expiration is 03/2023. The underlying is a hypothetical 6% coupon bond.
MikeG62
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Re: Guessing CD and Treasury rates going forward

Post by MikeG62 »

hoops777 wrote: Wed Sep 21, 2022 1:20 pm After the fed meeting today I am wondering what you all think CD rates and treasuries will be at in the next 12 months.

I understand nobody knows but I also know there are a lot of smart people here who can make an educated guess.

I have a lot of CD’s and treasuries maturing in the next 4 to 10 months that I would like to make longer term so am hoping for some good rates.
What term CD's and what duration Treasuries?

To your last comment, maybe be worth considering exiting those CD's and short-term Treasuries and extending the duration. As of this morning 5 year notes are yielding 4.05% and 7-year notes are yielding 3.97%.

I can't help but think once the Fed has vanquished inflation, the economy will have been impacted in a way where the future moves by the Fed will be to lower rates and not raise them. When the market comes to that conclusion is unknowable now, but one thing is almost a guarantee, the market will adjust to that long before the Fed makes any announcement or begins cutting.

To be clear I am not suggesting any cutting of rates in 2022 or even 2023, but once inflation has been fixed and the effects of these higher rates permeate the economy, it is hard to imagine rates remaining high.

I am laddering Treasuries myself and recently began to add longer dated notes to the ladder (more 2 & 3 year notes earlier this week and even 5 year notes yesterday). I am now watching the 7-year notes as they approach 4.0%.
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sureshoe
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Re: Guessing CD and Treasury rates going forward

Post by sureshoe »

There are computers out there running trillions of operations each second in complex AI algorithms to "guess" this. Not going to get a superior answer on a message board :)
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jeffyscott
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Re: Guessing CD and Treasury rates going forward

Post by jeffyscott »

MikeG62 wrote: Fri Sep 23, 2022 7:00 amI can't help but think once the Fed has vanquished inflation, the economy will have been impacted in a way where the future moves by the Fed will be to lower rates and not raise them. When the market comes to that conclusion is unknowable now, but one thing is almost a guarantee, the market will adjust to that long before the Fed makes any announcement or begins cutting.

To be clear I am not suggesting any cutting of rates in 2022 or even 2023, but once inflation has been fixed and the effects of these higher rates permeate the economy, it is hard to imagine rates remaining high.
The market reached that conclusion some time ago. That's why the 10 year yield is less than the 2 year (and the 6 month, 5 year, etc.). But based on Fed fund futures as shown at the Fedwatch site, it looks like there is now little expectation of a cut until late in 2023.

The timing of the expected Fed moves will continue to change, of course.
And so it goes, And so it goes, And so it goes, And so it goes, But where it's goin' no one knows
MikeG62
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Re: Guessing CD and Treasury rates going forward

Post by MikeG62 »

jeffyscott wrote: Fri Sep 23, 2022 8:12 am
MikeG62 wrote: Fri Sep 23, 2022 7:00 amI can't help but think once the Fed has vanquished inflation, the economy will have been impacted in a way where the future moves by the Fed will be to lower rates and not raise them. When the market comes to that conclusion is unknowable now, but one thing is almost a guarantee, the market will adjust to that long before the Fed makes any announcement or begins cutting.

To be clear I am not suggesting any cutting of rates in 2022 or even 2023, but once inflation has been fixed and the effects of these higher rates permeate the economy, it is hard to imagine rates remaining high.
The market reached that conclusion some time ago. That's why the 10 year yield is less than the 2 year (and the 6 month, 5 year, etc.). But based on Fed fund futures as shown at the Fedwatch site, it looks like there is now little expectation of a cut until late in 2023.

The timing of the expected Fed moves will continue to change, of course.
Agreed. My point was that if the OP waits until the Fed is going to cut rates before investing in longer date bonds, he/she will have long missed the peak in rates for this cycle.

Since no one can predict the future, it is why I have been laddering Treasuries the last 3 months. In addition, if the 7-year pushes through 4%, I will likely sell some of the shorter duration Treasuries I own (scheduled to mature in the next few months) and roll them into the longer dated Treasury notes.
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Call_Me_Op
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Re: Guessing CD and Treasury rates going forward

Post by Call_Me_Op »

sureshoe wrote: Fri Sep 23, 2022 7:16 am There are computers out there running trillions of operations each second in complex AI algorithms to "guess" this. Not going to get a superior answer on a message board :)
You sure about that? :)
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JackoC
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Re: Guessing CD and Treasury rates going forward

Post by JackoC »

Call_Me_Op wrote: Sat Sep 24, 2022 8:25 am
sureshoe wrote: Fri Sep 23, 2022 7:16 am There are computers out there running trillions of operations each second in complex AI algorithms to "guess" this. Not going to get a superior answer on a message board :)
You sure about that? :)
I'd say it seriously, not likely there is a such a model, to make a much different guess of expected (over/under bet) outcome than today's forward rate for the period in question (which wasn't specified). One factor on the treasury curve that matters besides forward rate is term premium, the difference between market's actual expectation of the rate for that period when it becomes 'spot' v the forward rate for that period now. It requires modeling to try to estimate that but it's a second order effect and publicly available model output shows the term premium being pretty small in recent times for most maturities. Likewise what CD's will do is more complicated because the market for (best) CD's isn't efficient, there are much better and worse deals for the same thing by 10's of bps or more. But 'armies of quants' don't model CD's because there's no money in it for the professional market.

Now the treasury curve doesn't really have a great of shape. If considering the 5 yr rate it's 3.96% now. The 1 yr forward 5 yr rate ('1x6'), considering now's 6yr rate to be the linear interpolation of 5 and 7, 3.91 and 1 yr at 4.15 is around 3.86% so market midpoint expectation isn't for a dramatic change in term rates but more likely slightly down as short rate gets raised above 4 and that's expected to slow the economy and force the short rate back down to some degree. The market's midpoint expectation in a snapshot, *not* a 'prediction' of what will actually happen which is unknowable, not necessarily the market's midpoint expectation any longer when it gets the next significant piece of currently unknown information.

CD's are generally most attractive relative to treasuries though when yields are going down pretty fast, they lag. Best 5 yr CD I see now is treasury -25bps (3.75, correcting for APY CD v semi-annual treasury). My current portfolio of CD's (4-5+ yr originally) was bought at average of same maturity treasury plus 137. Other factors affect that spread but we're unlikely to see the old opportunities IMO without a sudden drop in term rates.
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