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Why we are going long bonds in October


Many investors have been keeping close tabs on the course of US interest rates and there is a growing consensus in the market that the Fed may be close to reaching peak rates. The bond market right now seems to be where all the action is. US Treasury bond funds in particular seem to be attracting record inflows.

The US rate hike we saw in July is regarded in many quarters as an indicator that bond markets have reached their nadir. This could be setting up an interesting trade to take advantage of upside in bond prices.

The bond market is currently responding to perceived stagflationary characteristics - i.e. prospects for inflation plus a recession. The market seems to be more inclined to hold shorter term US debt, especially as investors are getting rewarded for it - e.g. a risk free return of 5.63% on three month Treasuries.

For many investors, including most of our readers sitting outside the US, access to US Treasury markets can be problematic. Luckily the ETF market has now made them more accessible, and it has become easy to buy and sell the US government bond market using a stock trading account.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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