I do not feel that now is a good time to invest in long-term bonds. The reason is this – the value of long-term bonds decreases as interest rates increase. As this looks like an increasing interest rate environment, long-term bonds look like they would come with an opportunity cost. Short-term bonds would be a better investment in this environment..
There is a Federal Reserve rate increase expected this week, but that has already been priced into the bond market (Robb, 2017). The idea of the Fed increase is that it will place a constraint on economic growth, in which case the current economic expansion will continue "at a steady pace without overheating" (Robb, 2017). Indeed, the Fed has already cautioned that if the market does not respond with slowing conditions that "All else equal, an easing of financial conditions may warrant a somewhat steeper policy rate path." (Robb, 2017). Thus, the current condition is that rates are going to increase, but they will likely have to increase again, and perhaps at a faster rate than is currently built into long-term bond prices.
There is, however, the question of whether or not a new tax plan will be passed, and...
References
Hayes, D. (2017). Bond basics tutorial. Investopedia. Retrieved December 11, 2017 from https://www.investopedia.com/university/bonds/bonds3.asp
Robb, G. (2017). Here's why the Fed will hike interest rates on Wednesday. Marketwatch. Retrieved December 11, 2017 from https://www.marketwatch.com/story/heres-why-the-fed-will-hike-interest-rates-2017-12-11
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Bonds I do not feel that now is a good time to invest in long-term bonds. The reason is this – the value of long-term bonds decreases as interest rates increase. As this looks like an increasing interest rate environment, long-term bonds look like they would come with an opportunity cost. Short-term bonds would be a better investment in this environment.. There is a Federal Reserve rate increase expected this week, but
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