What's happening with long-term bond interest rates?

Back on September 16, the 10-year interest rate was 3.6%. Today it’s sitting at 4.2%. That’s a pretty big jump in just under two months. But what’s strange is that short-term rates, which the Fed has more control over, are expected to go down within the next year. So, what gives? What’s behind this rise?

The yield curve is going to adjust as the Fed starts easing up on the short-term rates.

There are multiple predictions saying it could float back to just under 5% by the end of the year, with short-term rates holding steady around 4%.

This is the kind of thing long-term investors are hoping for.

@Tavi
Yeah, good luck telling that to my refinancing hopes.

Zyan said:
@Tavi
Yeah, good luck telling that to my refinancing hopes.

30-year mortgage rates are back under 6%. If you’re holding out for rates under 5%, you’re dreaming. Maybe a few years from now. If your current rate is above 7%, it might be time to consider refinancing.

@Tavi
The problem is refinance rates are still higher than mortgage rates. I couldn’t refinance when rates were lower, or I would’ve already done it.

On October 1st, the 10-year was at 3.75%. Now it’s just below 4.25%, even though the FOMC cut 50 basis points and another 1 or 2 cuts of 25bp are expected by the end of the year. It’s hard to wrap my head around it. My advice? Check out recent interviews with Paul Tudor Jones and Stanley Druckenmiller. They’ve been spot on about what’s happening.

In short, the US spending and deficits are getting out of control, and the bond market doesn’t like it. If rates keep climbing, we could see some serious volatility.

And don’t forget the upcoming risk events:

  • Japan elections this weekend
  • Bank of Japan meeting next Thursday
  • Non-farm payrolls next Friday
  • US election on November 5th
  • FOMC and BOE meetings on November 7th

Plus, the Israel situation is heating up, and with the risk of strikes on oil or nuclear sites, we’re facing a lot of uncertainty. This might also explain why big funds are reducing their risk exposure ahead of the potential turbulence.

And meanwhile, equities seem to ignore all of it. Steve Sosnick said it perfectly: “Buy dips, chase rallies, lever up.” So many investors seem to just follow the herd without any awareness of what’s going on. If the market stumbles, we could see a big correction that’ll catch a lot of people by surprise.

Good luck, everyone.

@Kei
Yeah, I’ve been thinking about the whole ‘uneducated investors’ idea.

I kind of agree. It feels like most people know ‘stocks are good, bonds are bad’ and that’s about it. But it’s not like the previous generation were experts either. It just seems like there’s so much more money in the market now, so more people are investing, even if they don’t know much.

People complain about being broke, but they’re still living well. Even my friends who claim to be poor are doing okay financially. Something doesn’t add up.

@Kei
Does any of this matter if earnings are still good? Not really.

Will these things impact earnings? Time will tell.

At the end of the day, the stock market revolves around earnings. So far, none of the stuff you mentioned has had a direct effect, but it’s still a good idea to hedge and be cautious.

@Zyan
If the government’s debt becomes a serious issue, earnings won’t matter at all. The whole system could collapse.

Micah said:
@Zyan
If the government’s debt becomes a serious issue, earnings won’t matter at all. The whole system could collapse.

And when that happens, your dollars will be worthless anyway. So what’s your point?

Are you stockpiling gold and ammo?

@Zyan
Have you seen the price of gold? A lot of people are buying right now.

Gracen said:
@Zyan
Have you seen the price of gold? A lot of people are buying right now.

So, are you buying gold?

Zyan said:

Gracen said:
@Zyan
Have you seen the price of gold? A lot of people are buying right now.

So, are you buying gold?

I bought mine 10 years ago when the price was half of what it is now.

Remember, the market tends to price in anticipated interest rate moves before they happen. The economy is still going strong, and inflation is high. That’s why we’re seeing slower drops in rates lately. When the Fed announces a cut, it’s kind of old news.

@Logan
One more thing – ‘buy the rumor, sell the news’ still applies. The best time to sell BND? September 16th.

Logan said:
@Logan
One more thing – ‘buy the rumor, sell the news’ still applies. The best time to sell BND? September 16th.

Exactly. Bond prices were overbought, and we got positive job numbers right after that. I think the Fed’s 50-point cut was their way of staying ahead of unemployment. Then, the jobs report made people feel more confident about a soft landing. Bonds are oversold now, so we’ll see what happens when we get a rebound.

The guy who’s promising tax cuts while adding trillions to the deficit and slapping on 1920-style tariffs for no reason is definitely affecting long-term rates…

Our national debt is spiraling out of control. Deficit spending is catching up with us, and the bond market is waking up.

Zhi said:
Our national debt is spiraling out of control. Deficit spending is catching up with us, and the bond market is waking up.

Actually, US debt to GDP is going down, not up.

Ben said:

Zhi said:
Our national debt is spiraling out of control. Deficit spending is catching up with us, and the bond market is waking up.

Actually, US debt to GDP is going down, not up.

I’ve got a chart that disagrees: Debt to GDP. It’s been climbing steadily since the dot-com crash.