Question

If an investor expect interest rate to decrease in the near term, should the investor invest in bonds with longer terms to maturity or bonds with shorter terms to maturity?

Answer 1

When interest rates are expected to fall, bond prices tend to rise and when interest rates are expected to rise, bond prices falls. Interest rates and bond yields move in the same direction.
Longer duration bonds are more sensitive to rate movement and their price take a bigger hit when yield rises or their prices rises sharply when the yield falls. So, if an investor is sure that the interest rates in the near term is going to fall he/ she should buy long terms bonds, as interest rates falls bond prices will rise and hence he/ she can make profit out of their investment.