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Subject:  interest rate dogma Date:  5/12/2002  10:45 AM
Author:  hackshark Number:  3634 of 36468

I have noticed, on countless occassionns, on numerous boards, that everyone assumes interest rates will be going up in the not-so-distant future. Based on historical observations, this is probably true. However, people often mention the likelihood of rate hikes as a reason to not buy bonds / bonds funds at present.

So now to the question:
Aren't the markets set up to anticipate interest rate moves?

Anyone who uses the likelihood of rate hikes as a reason to not participate in bonds seems to be saying they are anticipating something that the market hasn't priced in, or doesn't yet know about. In my view the likelihood of rate hikes should already be reflected in current yields, in a discounted fashion.

(although I think we could be enterring a japan-style era of deflation, so it could be 10-15 years before rates go higher. I happen to think the next FOMC will be to CUT rates. Only time will tell. If this does happen, bonds could continue to due well, and a 5 year CD at current rates would look like a genius move, in retrospect.).
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