What’s the First Thing to Move When Rates Drop?
This is something I keep thinking about whenever interest rates come up these days—looking at past cycles, the market had already reacted before rate-cut signals even turned into actual cuts.
So right now actually feels like an awkward window to do nothing. I’m curious how everyone else is looking at it.
10 answers
In the end, the conclusion is that nobody knows lol
Do you happen to have any references? I'm curious whether it's just a hunch or based on data.
Me too.
But this time might be a bit different, since it’s not a setup where everyone piles in as soon as there’s a rate-cut signal like before. The fiscal situations in each country play into that too. I’m actually leaning more toward the view that rate cuts keep getting delayed.
Bonds move first, gotta admit
Last year, I bought some long-term bonds because I believed that talk about an “ambiguous zone.” At first it went well, but when the exchange rate spiked, I gave back almost all the gains. Looking back, the problem was trying to call the direction; if I’d just scaled in, I would’ve been much more comfortable mentally. I really think position sizing, not timing, is the answer.
Well, that's a bit... The phrase 'the market prices it in ahead of time' is itself hindsight. In reality, there were plenty of times when rates bounced back after cuts actually began, and if pre-pricing explained everything, no one would have taken a loss, right?
Personally, I think it's better to look at the liquidity cycle before interest rates. The timing of rate cuts itself is information everyone already knows, so there's almost no alpha in it; what matters more is where the money that was already released beforehand is flowing.
Oh, I didn't know this.
Isn't that old news? Sounds like you're talking based on the 2010s low-interest-rate cycle, but the structure of capital flows is pretty different between then and now, and above all, the phrase 'ambiguous zone' itself just sounds like a nudge to buy. Evidence, please.