The "anticipation" is important. The yields on intermediate-term bonds (which this fund holds) are not tied directly to the short-term rate that the Fed targets. Rather, bond traders trade bonds based on expectations over the entire term of the bond. If a bond investor expects that short-term rates will average 3% over then next ten years, they will only buy a 10-year bond at a 4% yield, as compensation for the extra interest-rate risk.Here are 2 charts of US Bond fund FXNAX and Fed interest rates from Dec 2018 to Dec 2023
https://imgur.com/a/zuR9d3Z
from the charts you can see
1 - The bond fund peaked when Fed rate dropped near 0
2 - The bond fund continue its decline until Oct 2023
Looks like it's directly correlated to the anticipation of rate hike - 1. It peaked around Apr 2020 as Fed has no room to further cut rate - it's near zero. 2. around Oct 2023, more and more data indicates inflation is under control and further rate hike anticipation dissipated.
And it is this anticipation that is the reason you can't productively time the bond market. If the Fed makes an expected increase in interest rates, that won't affect your bonds. If there are unexpected increases, this will cause bonds to lose value, but you don't know whether there will be unexpected increases or decreases.
Statistics: Posted by grabiner — Sun Dec 03, 2023 9:28 pm — Replies 6 — Views 726