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Schwab says buy Long-term Bonds

https://smartasset.com/investing/charles-schwab-says-now-is-the-time-to-add-this-asset-to-your-retirement-portfolio

Why 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

  • I wonder how they determined "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."
  • Attended a conference this week where the CIO of a very large bank just espoused the opposite. His advice? Avoid Bonds like the plague and shift from Growth to Value - he said to follow the same advice he gave in October of last year.

    "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.
  • edited April 13
    An advisory firm I follow put a buy on long term T's a week or so ago. The main argument was that beginning this quarter, YOY comps for econ growth and corporate profits are going to look very, very bad, there are slowing signs already, and like you quoted Schwab, rates have run high, far, and fast.

    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.
  • edited April 13
    GLDB (etf) has had a couple good days after a miserable stretch. Still down 3-4% YTD. Only consider it if you like both gold and longer IG corporates. I’m neutral on gold and the miners. Very hot recently, which is a bit scary. But % wise my exposure is relatively small, so riding the tide.

    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.
  • edited April 14
    The Fed has just started raising interest rates.
    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.


  • edited April 14

    How much QT is factored into current bond yields?

    QT (Quantative Tightening) -reducing the Fed's Balance Sheet- is a major market overhang issue for the rest of 2022. Tough to estimate the impact thus far to bond pricing.

  • JD_co said:

    How much QT is factored into current bond yields?

    QT (Quantative Tightening) -reducing the Fed's Balance Sheet- is a major market overhang issue for the rest of 2022. Tough to estimate the impact thus far to bond pricing.

    Exactly!

  • It will sell up to $60 billion of U.S. Treasuries and $35 billion of mortgage-backed bonds per month.
    Wonder which direction balanced fund managers will tilt toward ?
  • edited April 14
    Realizing that we've had a tremendous Bull run in US bonds and much accommodation from the Fed, its still amazing to look at a Bond index fund like VBMFX that has had 30 yrs up and only 5 years down. Going back to 1987, its worst year was -2.7%.

    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.
  • We live in a fascinating world where fixed income is treated as a source of capital gains!
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