US government bonds yield cross 5%, a decadal high: Should you invest?

livemint.com:

Good yield: Currently, the yield on US government securities of various maturities, such as 1, 2, 3, 5, 7, and 10-year, is in the 4.5% to 5.5% range. These are attractive yields when compared to yields on these securities in the past. These yields were last seen in 2007-08, which was 15 years back.

Also, the current high yields will not last for too long. Hence, you may consider investing in US government bonds and lock in the current high yields. Potential for capital appreciation: The current yields on US government bonds are high as the US Federal Reserve has raised interest rates to combat high inflation.

However, in the last one year, the US inflation has come down significantly from the 9.1% peak rate to 3.70% in September 2023. Also, there is fear that the current high interest rates may slow down the US economy significantly or even lead to a recession. Once the inflation rate falls to the US Fed's target of 2% or below, or the US economy slows significantly/recession, the US Fed will cut interest rates.

Interest rates and bond prices have an inverse relationship. When interest rates fall, the bond prices rise and vice versa. So, whenever the US Fed cuts interest rates, the bond prices will rally, and you will have an opportunity to make capital gains.

The bonds with a longer maturity (5, 7, 10 years, etc.) have a higher sensitivity to changes in interest rates compared to bonds with lower maturity (1, 2, 3 years, etc.). The higher the sensitivity to changes in interest rates, the higher the potential for capital gains. As per the analysts’ current projections, the US Fed is expected to cut interest rates in the second half of 2024.