Hypothetical situation.

Say I bought 30 year US Treasuries when the yield approaches 5%. Then at some point in the future, the fed rates drop down to 2%. In theory how much would my position rise? Would it be marginal or substantial?

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Thanks!

What if it was within the next 2-3 years?

The further away from maturity, the more the price would change in response to interest rate changes.

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A 30 year Treasury at 2% would be roughly 40% higher in value. If it takes 4 years, then less, of course.

The trade isn’t just will interest rates go down to 2%? Long term rates are generally a reflection of expectations on real GDP growth - so inflation expectations are in the mix as well. Fed policy plays a secondary role here. The other factor is the credit worthiness of the US Treasury - or at least the supply demand balance for UST debt.

So my read is moderate real growth, sticky inflation, and continued Treasury issuance don’t portend to falling rates in the next year or two.

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