I read The Bond Book as recommended by another user here and had a few follow up questions:
1. Is the reason why an inverted yield curve predicts falling interest rates is because if investors expect yields to fall, they are willing to pay a premium for the current highest-yielding bonds so they can lock in the higher yields for as long as possible?
2. What is the lag between the Fed raising (or lowering) interest rates the prices of bonds falling (rising)? Is it instantaneous? As an example, the last Fed rate increase was on the 7/23/23 meeting, yet the price of VWIUX continued to fall over the next 3 months. Why wasn't there a single large drop on that day that affected all bonds held in the fund?
3. Is the yield curve based on the latest auction results, the secondary market, or something else? How often is it updated?
4. Would a 30-year treasury bond with 10 years until maturity occupy the same spot on the yield curve as a newly-issued 10-year treasury note? Would an investor looking to buy a 10-year treasury be indifferent to those two options?
1. Is the reason why an inverted yield curve predicts falling interest rates is because if investors expect yields to fall, they are willing to pay a premium for the current highest-yielding bonds so they can lock in the higher yields for as long as possible?
2. What is the lag between the Fed raising (or lowering) interest rates the prices of bonds falling (rising)? Is it instantaneous? As an example, the last Fed rate increase was on the 7/23/23 meeting, yet the price of VWIUX continued to fall over the next 3 months. Why wasn't there a single large drop on that day that affected all bonds held in the fund?
3. Is the yield curve based on the latest auction results, the secondary market, or something else? How often is it updated?
4. Would a 30-year treasury bond with 10 years until maturity occupy the same spot on the yield curve as a newly-issued 10-year treasury note? Would an investor looking to buy a 10-year treasury be indifferent to those two options?
Statistics: Posted by hudson4351 — Thu May 16, 2024 4:04 pm — Replies 0 — Views 60