Timing for buying long term U.S. bonds/notes

So when I first started investing, the question of whether to buy short term bills or longer term notes or even bonds (5-10yrs+) was a big question on my mind.

A friend with some investing experience said he’d just “mark the market” and wouldn’t buy longer term notes.

That kind of made sense and I’m glad I didn’t go into longer term bonds without fully understanding the consequences.

Now that I have a better understand, just got the idea from a video about perhaps when I might move into some longer term bonds.

Long term bonds are super risky

A 30-yr bond purchased in 2020 have lost half its value by 2023. The yield went from 1.5% to 4.5%.

That’s as bad as how much the stock market fell during the 2008 financial crisis.

The basic logic is, the longer term the bond, the more price fluctuates when long term interest rate changes.

And the notion of “if I just keep on holding it it’s fine” doesn’t work at all, because you are losing opportunities to get higher return, and that opportunity lost is exactly reflected in the price drop.

Of course with that said, when the downside is big, the upside is also big.

Timing for long term bonds

Basically, the best time to get in is when the economy goes to shit, and the Fed cuts rates to revive the economy.

At this point June 2024, it would seem that the market is at the peak and a downturn is due sometime soon, and then there would be a series of rate cuts perhaps.

Also the inverted yield curve is kind of an indication that it should be coming … now should be a great time to get into long term bonds right?

Well … maybe not so fast.

In fact the inverted yield curve has lasted for 1+ year.

In 2023 people already thought a downturn is due. But it hasn’t come yet.

The economy is persistently doing well, inflation is sticking, and the stock market is performing quite well – perhaps due to the AI boom.

Anyways there were probably some people invested in long term bond in 2023 thinking exact that and getting burned a bit.

Eventually they might still be right but that eventually is taking quite a long time.

Wait for stronger signal and give up the “head and tail”

A good strategy in this situation is perhaps, waiting for stronger signals of a downturn or buy right in the middle of it.

Sure, rates would have already fallen a bit by then, but it’d still be a good time to move.

There is a saying in Japanese – 頭と尻尾をくれ … meaning with a fish everyone wants the whole thing.

But with investing it’s impossible to get the whole fish. Attempting to do so usually end up making moves too soon and losing.

I was actually thinking about buying some long term bonds earlier but after watching a video of someone talking about this strategy, I think I’ll wait a bit more.

A close eyes on inflation, employment stats, FedWatch etc … hopefully I’ll be able to kind of see it coming when it does.

Who knows maybe I’m overestimating myself too. It’s also doable to buy just a tiny bit now and move in more when I see it coming. Let me think about that a bit.

Edit – buying earlier might be a good idea

Actually come to think, I will be buying a little bit, maybe 5% of portfolio as soon as possible.

With my positions in USD.JPY carry trade, downward movements in interest rate already will hurt.

Also an economic downturn means downward pressure on both US and JP equity, so a downturn is really a triple-punch.

Beside having some gold to hedge, it probably makes sense to start getting into some LT US bonds as well to mitigate the punch if/when the time comes.

Maybe with a soft-landing plus a stick inflation rates never come down or even goes back up, but in that case I’ll win on my carry trades anyway if nothing else.

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