We are often asked to predict interest rates, typically because investors hope to invest at the most opportune moment. The motivation is understandable, but the ability to consistently identify that moment is questionable. Voluminous economic data, geopolitical events, shifting monetary policies, and ever-changing economic conditions make forecasting interest rates an unrealistic exercise.
Although history does not necessarily repeat itself, historical trends can provide perspective on the broader direction of interest rates. While yields fluctuate daily, interest rate cycles typically unfold over years, sometimes even decades, rather than days or weeks. Recognizing these longer-term cycles may be more valuable than attempting to pinpoint the next move in rates.
See more: Tug-of-War: Who is Setting Interest Rates?
Perhaps a better question than “Are interest rates peaking?” is “Does today's rate environment meet my long-term income and cash flow objectives?”
The accompanying graphs illustrate this point more effectively than words alone. It took years for yields to return to current levels, presenting investors with an opportunity to secure meaningful income and predictable cash flow for years to come. Will another opportunity to lock in comparable yields emerge during an investor's remaining investment horizon? Perhaps. But waiting for an even better opportunity carries its own risk.
The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.
Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.
To learn more about the risks and rewards of investing in fixed income, access the Financial Industry Regulatory Authority’s website at finra.org/investors/learn-to-invest/types-investments/bonds and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) at emma.msrb.org.
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