imported post
I should've made that more clear... basically, you want to buy bonds when you think the interest rate is going to fall in the future. The reason for that is your bond's value is dependent upon the interest rate at the time you purchase the bond (of course, there are a lot of different types of bonds and a lot more goes into it than this, but for simplicity's sake, I'll avoid all those thorny issues, since this discussion centers around the F fund, which is a huge index of bonds). If interest rates are falling, prices for bonds will rise, because each future bond issued as the rates drop will be worth LESS than the existing bonds (which in turn increases demand for them). Likewise, as interest rates go up (as they are right now), bond prices fall - because the expectation is that the rates will continue climbing, making bonds purchased in the future worth more than bonds purchased at the present time (which diminishes demand). As for the 5% number I threw out there earlier, that's just a guess on my part - unless prices rise out of control for some reason, I just don't see the feds raising rates much above that threshold in the future - which is why I would buy at that rate, under the assumption that bond prices will begin rising shortly thereafter. The whole point is to try to buy bonds when you believe interest rates are at or very close to their maximum and are about to fall. I hope this explanation helps. As for the time at which we will hit that target interest rate, I don't know - but it probably won't happen for several years.