https://smartasset.com/investing/charles-schwab-says-now-is-the-time-to-add-this-asset-to-your-retirement-portfolioWhy Will Bonds Recover Now?"There are a couple indications that Schwab analysts say point to a buying opportunity.
The bond yield curve jumped and has maintained a high level, which means that the market is already discounting a fast pace of Fed rate hikes. Even though the Fed has only raised interest rates once thus far, the yield curve signals a lot of future rate hikes being priced in–so many, in fact, that the number of hikes would have to extend into 2024 to make sense.
Another indicator is the real level of inflation affecting the economy. Due to rising commodity prices, Schwab analysts expect inflation to remain high through the end of the year, when levels should ease again in response to changed Federal Reserve policy. The economy already appears to be cooling, as rising interest rates moderate housing demand and capital goods expenditures."
Anybody else buying this argument?
Comments
"The company acknowledges that there may remain some pricing risk if high levels of inflation continue..." quite a weak disclaimer followed by a "but that risk is small". Sigh.
I've been thinking I'd consider something approaching real $ in long T's around, maybe just shy of, 3%. But who knows whether any down-yield move (like today) has/will have staying power.
Long term bearish on bonds. But I do think they’re a bit oversold. You might be glad to own a few if the equity markets stumble hard - which they haven’t really done.
There will be multiple rates hikes this year and probably next year to suppress inflation.
Also, the Fed will implement Quantative Tightening (QT) to reduce its $9 trillion balance sheet.
It will sell up to $60 billion of U.S. Treasuries and $35 billion of mortgage-backed bonds per month.
How much QT is factored into current bond yields?
Schwab suggests looking at intermediate to long-term bonds now.
Since I don't want to fight the Fed, I currently prefer short-term bonds and cash as fixed income holdings.
However, its down over -8% YTD. I would think at some point this year...in another quarter or so.... that there should be a really nice opportunity to crawl back in.