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How To Lock In Higher Yields In Case Interest Rates Fall
Jan 24, 2024
Learn how to lock in higher yields by purchasing longer-term individual bonds and bullet ETFs. Understand the impact of short-term interest rates, inflation expectations, and term premiums on long-term interest rates. Discover the concept of yield to maturity and how it guides fixed returns. Analyze bullet ETFs, callable bonds, and municipal bonds for higher yields. Explore strategies to lock in higher yields, such as investing in bullet ETFs or individual bonds with longer maturities.
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Quick takeaways
- Investors can lock in higher yields by investing in longer-term bonds or bullet ETFs due to the anticipation of lower cash yields.
- Yield to maturity is an estimate of the total return if a bond is held until maturity, accounting for coupon rates and the price paid for the bond.
Deep dives
Locking in Higher Yields with Bullet ETFs and Bonds
Investors can lock in higher yields by investing in longer-term bonds or bullet ETFs due to the anticipation of lower cash yields. Market participants expect a decline in cash yields, including CDs and money market mutual funds, as central banks like the U.S. Federal Reserve adjust policy rates. Longer-term interest rates are influenced by expectations for future short-term interest rates, as well as inflation expectations and term premiums. By purchasing individual bonds or bullet ETFs, investors can lock in higher yields and benefit from the optionality of potential rate decreases.
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