Author Topic: Long Term Treasury Bonds  (Read 8495 times)

dalekeener

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Long Term Treasury Bonds
« on: October 12, 2015, 08:58:00 AM »
I was wondering if anyone has used long term treasury bond funds/etf's. I was looking at ETF (TLO). I have read where these type of investments while can be volatile, some use as a hedge against equities.

Dale

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Re: Long Term Treasury Bonds
« Reply #1 on: October 12, 2015, 10:42:54 AM »
I own some TLT as part of my overall asset allocation.

Yes, long term treasuries are volatile (they move just as much as stocks, but often in the opposite direction) so it's important to understand what you're getting into. But they can be stronger stock diversifiers even than corporate bonds and have less credit risk. And depending on your portfolio strategy the volatility can work in your favor for rebalancing (buying low, selling high). 

Looking at any asset in isolation you can identify reasons to love or hate it. The most important thing is to understand how they fit into your larger investment plan. For some good discussion on how LTTs can function in a diverse asset allocation, I suggest reading about the Permanent Portfolio.

dalekeener

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Re: Long Term Treasury Bonds
« Reply #2 on: October 12, 2015, 02:32:14 PM »
I own some TLT as part of my overall asset allocation.

Yes, long term treasuries are volatile (they move just as much as stocks, but often in the opposite direction) so it's important to understand what you're getting into. But they can be stronger stock diversifiers even than corporate bonds and have less credit risk. And depending on your portfolio strategy the volatility can work in your favor for rebalancing (buying low, selling high). 

Looking at any asset in isolation you can identify reasons to love or hate it. The most important thing is to understand how they fit into your larger investment plan. For some good discussion on how LTTs can function in a diverse asset allocation, I suggest reading about the Permanent Portfolio.


That's (Permanent Portfolio and Ray Delio's All Weather Portfolio) where I got the idea for TLO...no commission at Schwab. I own a small amount now....and have watched them the past month or so...and they do seem to move in the opposite direction as my equity ETF's.....seems like a good hedge, better that a total bond fund?....we will see.....Trying to generate more income as well.

YoungInvestor

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Re: Long Term Treasury Bonds
« Reply #3 on: October 12, 2015, 03:18:34 PM »
With rates so close to 0, I don't understand the appeal of treasuries at this point, to be honest.

Definitely not an expert, but I can't really see a scenario with gains to be made there.

With more average interest rates, I get the appeal, but at this point, where's the upside exactly?

Radagast

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Re: Long Term Treasury Bonds
« Reply #4 on: October 12, 2015, 09:53:21 PM »
I own some TLT as part of my overall asset allocation.

Yes, long term treasuries are volatile (they move just as much as stocks, but often in the opposite direction) so it's important to understand what you're getting into. But they can be stronger stock diversifiers even than corporate bonds and have less credit risk. And depending on your portfolio strategy the volatility can work in your favor for rebalancing (buying low, selling high). 

Looking at any asset in isolation you can identify reasons to love or hate it. The most important thing is to understand how they fit into your larger investment plan. For some good discussion on how LTTs can function in a diverse asset allocation, I suggest reading about the Permanent Portfolio.


That's (Permanent Portfolio and Ray Delio's All Weather Portfolio) where I got the idea for TLO...no commission at Schwab. I own a small amount now....and have watched them the past month or so...and they do seem to move in the opposite direction as my equity ETF's.....seems like a good hedge, better that a total bond fund?....we will see.....Trying to generate more income as well.
Just buy them directly, no reason to pay the 0.15% (or whatever) for something you can do yourself. Just start buying the 2045 maturity date at Schwab, and after they get down to less than 25 or 20 years start selling them. It won't even be an extra step for 5-10 years, and then it won't be much of one. Plus there is less risk that way, because the bonds will be owned by you instead of the fund company.

10% long term treasuries can be a good addition for someone who recently started investing and is 100% stocks otherwise. It may actually increase returns.

With rates so close to 0, I don't understand the appeal of treasuries at this point, to be honest.

With more average interest rates, I get the appeal, but at this point, where's the upside exactly?
They have a yield similar to stock dividends, and the price is almost as volatile. So they aren't that different. Why buy stocks when the dividends are so close to zero? Basically if you hold bonds with only a long duration it means you are in it for the price changes, not for the interest.

YoungInvestor

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Re: Long Term Treasury Bonds
« Reply #5 on: October 13, 2015, 02:16:05 PM »

With rates so close to 0, I don't understand the appeal of treasuries at this point, to be honest.

With more average interest rates, I get the appeal, but at this point, where's the upside exactly?
They have a yield similar to stock dividends, and the price is almost as volatile. So they aren't that different. Why buy stocks when the dividends are so close to zero? Basically if you hold bonds with only a long duration it means you are in it for the price changes, not for the interest.

The price change is entirely based on interest rates.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #6 on: October 13, 2015, 02:23:49 PM »

With rates so close to 0, I don't understand the appeal of treasuries at this point, to be honest.

With more average interest rates, I get the appeal, but at this point, where's the upside exactly?
They have a yield similar to stock dividends, and the price is almost as volatile. So they aren't that different. Why buy stocks when the dividends are so close to zero? Basically if you hold bonds with only a long duration it means you are in it for the price changes, not for the interest.

The price change is entirely based on interest rates.

I'm with you. I see zero reason to own bonds right now if you want to make money. They're essentially at a price ceiling right now. That said, there's an argument to be made if you just want to mark time with inflation. Bonds will probably do that for you right now. If the Fed funds rate was around 2 to 3% and I could see a yield pushing 5% in a bond fund, I'd certainly allocate a slug of my portfolio to them, but I think for those with a long term investment horizon AND a large risk tolerance, better to just be in stocks. Index funds are yielding dividends that are nearly identical to bond yields. If you can handle the volatility, you're basically getting paid to wait for the capital gain (whenever it should materialize).

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #7 on: October 13, 2015, 04:28:06 PM »
The reason to own them is that long interest rates can go lower.  Long treasuries are a great deflation hedge (and deflation is as real a possibility as inflation at this point: http://www.cnbc.com/2015/10/13/the-us-is-closer-to-deflation-than-you-think.html)

Compare the price of our long treasuries to Japan or Switzerland for instance. Plenty of global downward price pressure on US treasuries.  People have been calling the end of this bond bull market for years and have been wrong to date.

My view on the macroeconomic future?  I don't have one, but smart traders have been making a lot of money going against the conventional wisdom that long treasuries are a bad bet for the last few years.

If I were buy and holding I would barbell a minority of long treasuries with short treasuries.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #8 on: October 13, 2015, 04:56:49 PM »
My view on the macroeconomic future?  I don't have one, but smart traders have been making a lot of money going against the conventional wisdom that long treasuries are a bad bet for the last few years.

Have they really made money? I mean, they haven't really lost money (compared to inflation) but have they MADE money. Especially compared to stocks. I mean, if you go back the past 10 years, sure bonds have done pretty well compared to stocks - a time period that included a massive market meltdown. But the last 5 years? Last 3 years? Stocks have killed it compared to bonds.

And that's the point to be made. There may HAVE been money to be made in bonds. But at current yields how do you expect to make money? Sure, you can expect to mark time with inflation given the current pricing. But to MAKE money, you need to see massive deflation. And I don't see that happening with a Fed that's happy to drop money out of helicopters if it comes to that. If, on the other hand, stocks worry you, then sure having some bonds to reduce your portfolio volatility so you can sleep better at night is a good idea.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #9 on: October 13, 2015, 05:18:06 PM »
My view on the macroeconomic future?  I don't have one, but smart traders have been making a lot of money going against the conventional wisdom that long treasuries are a bad bet for the last few years.

Have they really made money? I mean, they haven't really lost money (compared to inflation) but have they MADE money. Especially compared to stocks. I mean, if you go back the past 10 years, sure bonds have done pretty well compared to stocks - a time period that included a massive market meltdown. But the last 5 years? Last 3 years? Stocks have killed it compared to bonds.

And that's the point to be made. There may HAVE been money to be made in bonds. But at current yields how do you expect to make money? Sure, you can expect to mark time with inflation given the current pricing. But to MAKE money, you need to see massive deflation. And I don't see that happening with a Fed that's happy to drop money out of helicopters if it comes to that. If, on the other hand, stocks worry you, then sure having some bonds to reduce your portfolio volatility so you can sleep better at night is a good idea.

They have made the same total returns as the S&P for the past 2 years.



LAGuy

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Re: Long Term Treasury Bonds
« Reply #10 on: October 13, 2015, 05:40:12 PM »
My view on the macroeconomic future?  I don't have one, but smart traders have been making a lot of money going against the conventional wisdom that long treasuries are a bad bet for the last few years.

Have they really made money? I mean, they haven't really lost money (compared to inflation) but have they MADE money. Especially compared to stocks. I mean, if you go back the past 10 years, sure bonds have done pretty well compared to stocks - a time period that included a massive market meltdown. But the last 5 years? Last 3 years? Stocks have killed it compared to bonds.

And that's the point to be made. There may HAVE been money to be made in bonds. But at current yields how do you expect to make money? Sure, you can expect to mark time with inflation given the current pricing. But to MAKE money, you need to see massive deflation. And I don't see that happening with a Fed that's happy to drop money out of helicopters if it comes to that. If, on the other hand, stocks worry you, then sure having some bonds to reduce your portfolio volatility so you can sleep better at night is a good idea.

They have made the same total returns as the S&P for the past 2 years.

Hahahaha! Ok, we can all cherry pick our data points. My point is long bonds have basically marked time with inflation the past few years. That's not real surprising seeing as they are yielding 2%. But they haven't MADE any money. In the time frame you picked, sure they've done about the same as stocks. But that's more of a stock story then a bond story. Stocks have been down. The ONLY argument to owning bonds right now is protection against the stock market going DOWN. And in that case you'll have only "won" against stocks by virtue of the fact that you went NOWHERE.

Here's the TLDR for my future predictions:

Stocks: Maybe go up. Maybe go down.

Bonds: Maybe go down. Maybe go nowhere.

I'm just not seeing how bonds go UP from here? I mean a great depression like event might send yields down to 1%? Maybe the Fed institutes a negative interest rate program? Then you'll get to pay your bond yield directly to the US government treasury! I'm sure people will love to hold bonds then...

Again, only reason to own bonds: to not lose money. You're never going to make anything on them at these prices. I'm not advocating against them. The certainly have a place in the portfolio of those who absolutely need to limit losses under all circumstances (i.e. the retired, and those with low risk tolerance).

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #11 on: October 13, 2015, 05:58:25 PM »
My view on the macroeconomic future?  I don't have one, but smart traders have been making a lot of money going against the conventional wisdom that long treasuries are a bad bet for the last few years.

Have they really made money? I mean, they haven't really lost money (compared to inflation) but have they MADE money. Especially compared to stocks. I mean, if you go back the past 10 years, sure bonds have done pretty well compared to stocks - a time period that included a massive market meltdown. But the last 5 years? Last 3 years? Stocks have killed it compared to bonds.

And that's the point to be made. There may HAVE been money to be made in bonds. But at current yields how do you expect to make money? Sure, you can expect to mark time with inflation given the current pricing. But to MAKE money, you need to see massive deflation. And I don't see that happening with a Fed that's happy to drop money out of helicopters if it comes to that. If, on the other hand, stocks worry you, then sure having some bonds to reduce your portfolio volatility so you can sleep better at night is a good idea.

They have made the same total returns as the S&P for the past 2 years.

Hahahaha! Ok, we can all cherry pick our data points. My point is long bonds have basically marked time with inflation the past few years. That's not real surprising seeing as they are yielding 2%. But they haven't MADE any money. In the time frame you picked, sure they've done about the same as stocks. But that's more of a stock story then a bond story. Stocks have been down. The ONLY argument to owning bonds right now is protection against the stock market going DOWN. And in that case you'll have only "won" against stocks by virtue of the fact that you went NOWHERE.

Here's the TLDR for my future predictions:

Stocks: Maybe go up. Maybe go down.

Bonds: Maybe go down. Maybe go nowhere.

I'm just not seeing how bonds go UP from here? I mean a great depression like event might send yields down to 1%? Maybe the Fed institutes a negative interest rate program? Then you'll get to pay your bond yield directly to the US government treasury! I'm sure people will love to hold bonds then...

Again, only reason to own bonds: to not lose money. You're never going to make anything on them at these prices. I'm not advocating against them. The certainly have a place in the portfolio of those who absolutely need to limit losses under all circumstances (i.e. the retired, and those with low risk tolerance).

Not sure how that is cherry picking data.  My original point was that long bonds have been a great investment for the past couple years at precisely the time conventional wisdom was that long bonds were a bad idea. 

I then showed that for the past 2 years long bonds had the same return as the S&P (Which I will remind you was a time period where you thought equities "killed it compared to bonds.")

If the yield drops another percentage point, then 30 year treasuries bought today will appreciate by another 20-30%.  That's how bonds work, they have a market value in addition to a coupon.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #12 on: October 13, 2015, 06:24:44 PM »
I'm sorry, I just don't see that an investment that marked time with inflation was a "great investment." I guess we'll just have to disagree on the definition of a great investment.

If you go back one more year, stocks did in fact kill it versus bonds. That's the time frame I was referring to and what I meant by cherry picking time frames (we can both play at it). During the past two years, again bonds were not a great investment compared to inflation. Compared to stocks, bonds only good because stocks have done poorly over the past few months.

Radagast

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Re: Long Term Treasury Bonds
« Reply #13 on: October 13, 2015, 09:34:57 PM »
The price change is entirely based on interest rates.
I'm sorry, I just don't see that an investment that marked time with inflation was a "great investment." I guess we'll just have to disagree on the definition of a great investment.

If you go back one more year, stocks did in fact kill it versus bonds. That's the time frame I was referring to and what I meant by cherry picking time frames (we can both play at it). During the past two years, again bonds were not a great investment compared to inflation. Compared to stocks, bonds only good because stocks have done poorly over the past few months.
Remember we are talking about long term treasuries here, not "bonds". The price greatly magnifies the effects of both actual and expected inflation and interest rates (and other things). Which of these two assets is marking time with inflation?*


Compared to interest rates (randomly stolen from Forbes, not related) :


The point is, the highly volatile and non-correlated price swings can really help out a rebalanced portfolio of mostly stocks, or stocks and gold like the posts upstream of here were discussing.

*One is total stock market, the other long term treasuries, from Portfolio Visualizer.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #14 on: October 13, 2015, 10:12:22 PM »

I'm sorry, I just don't see that an investment that marked time with inflation was a "great investment." I guess we'll just have to disagree on the definition of a great investment.

If you go back one more year, stocks did in fact kill it versus bonds. That's the time frame I was referring to and what I meant by cherry picking time frames (we can both play at it). During the past two years, again bonds were not a great investment compared to inflation. Compared to stocks, bonds only good because stocks have done poorly over the past few months.

You are missing the central point here.

Your argument, is that there is no conceivable way that long bonds are a good investment going forward because rates are too low.

My point is that:

1:  Long treasuries may be a good investment going forward because interest rates can go lower, (or because stocks can collapse causing a flight to safety. )

And

2.  Your argument has been the common wisdom for the last couple years and the common wisdom has been wrong. Predicting future performance is not as easy as saying "interest rates are low so long bonds are a bad investment going forward." 

That's a simplistic mental model that is clearly not helpful.

As pointed out by raven, the correlation of long bond performance with interest rates is not what you conceive it to be.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #15 on: October 13, 2015, 10:19:01 PM »
And yes I consider a CAGR of 11.2 to be an excellent return on capital.

You must have been quite lucky in your past investments if you don't.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #16 on: October 13, 2015, 11:14:25 PM »
I'm not missing the point at all. I understand that you believe bonds can go higher in a flight the safety. I'm telling you the opposite. They can't go any higher unless you believe the Fed is going to pull out negative interest rates. I believe this year has proven my point beyond a doubt. Stocks are down. The flight to safety happened. And yet...bond funds at best matched stock performance. Why? Because bond prices are already essentially as high as they can go. It's like you guys are saying, "Hey look! Stocks did terrible this year. Bonds matched stocks! Bonds are great!" Derp.

https://personal.vanguard.com/us/funds/tools/benchmarkreturns

Here's a link to the benchmark returns at Vanguard for just about every benchmark under the sun. Take a look at the first two sections regarding bonds. Over the past 5 to 10 year period quite a few bond funds did not too shabby. 5, 6 percent returns and a bit lower in the Muni's as one would expect. Not as great as stocks historically, but still not bad at all for a relatively safe investment and they compare quite favorably to the returns to the stock indexes further down for the same time period (that included the 2008 crash). Now, move over a column or two to the 3 and 1 year returns. In a word: Terrible. They're not even returning 3% annual over a 3 year time period. This is a good investment? If you want to cherry pick out your long bonds, they've done well over exactly one time period of 1 year. With an over 8% annual return. That they then proceeded to give back this YTD. Sure, you might see some isolated incidents of bonds spiking up for a year before they retreat to a new mean of sub 3% or so.

And speaking of those YTD numbers! In a year stocks are doing horrible, bond funds are looking like they might actually lose money in a losing year for stocks!!! Anybody have any idea when that last happened. Apparently it's only happened in 1931, 1941, and 1969 per this site.

http://awealthofcommonsense.com/often-stocks-bonds-decline-time/

So, tell me. How again exactly have bonds been "great investments." Personally, I'd consider an annualized bond return of between 5 to 6% to be quite acceptable. But in the current interest rate environment, the best they can manage is the high 2% range. What kind of environment, going forward, is going to allow you to get to...and maintain...a 5 to 6% rate of return? Unless you think sub 3% returns are good? I mean if that's the case just say so.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #17 on: October 13, 2015, 11:45:31 PM »
And yes I consider a CAGR of 11.2 to be an excellent return on capital.

You must have been quite lucky in your past investments if you don't.

And I've got to respond to this one. What does this number even mean? Are you saying you've seen an 11.2% return on bonds in the past few years? Because that's just BS. Otherwise, you're just trying to confuse people with weird metrics.

milesdividendmd

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Long Term Treasury Bonds
« Reply #18 on: October 13, 2015, 11:55:40 PM »
You think you understand but you clearly don't.

You're conflating the current  yield on long bonds with the total return for investing in long bonds.

They are in no way the same thing.

We both agree that over the  past two years the long bond ETF TLT returned between 11 and 12% annualized.  ( or exactly the same as the S&P 500)

For your flawed logic to be sound (that the yearly return on an investment in long duration Bonds is equivalent to the yield at the time of investment) that would have to mean that the yield on Long duration bonds two years ago was 16% percent higher than the current yield on long bonds.

Spoiler alert: the yield  on 30 year treasuries was not 20% two years ago. (it was 3.75%)

So the question is do you think it's possible that the treasury curve will flatten further?

Do you really think it's impossible that the 30 year treasury yield could go to 1.8 over the next two years?

Do you even know what the current-yield is on 30 year German Bunds?

What do you anticipate will be the total return on an investment in 30 year treasuries today if the yield drops 1% further?

This is clearly a learning opportunity for you.
« Last Edit: October 14, 2015, 12:03:07 AM by milesdividendmd »

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #19 on: October 13, 2015, 11:59:49 PM »

And yes I consider a CAGR of 11.2 to be an excellent return on capital.

You must have been quite lucky in your past investments if you don't.

And I've got to respond to this one. What does this number even mean? Are you saying you've seen an 11.2% return on bonds in the past few years? Because that's just BS. Otherwise, you're just trying to confuse people with weird metrics.


Did you even bother to look at the total returns on TLT versus the S&P that I posted, before you posted your comments?

Again you should really do your homework. Look at the data. Fixed income doesn't work the way you think it works.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #20 on: October 14, 2015, 12:25:57 AM »
LOL! What are you even talking about, hahaha? Nobody is making money on bonds. It's the macro economic story of our times. The Hunt for Yield. I mean, are you saying they ARE making money on bonds? If you're making money trading off foreign bonds on changes in currency, then hey...salud! But for normal people, all they have to do is go look at the return on their bond funds to see they haven't done well the past few years in the current interest rate climate. This is what people that have been saying that bonds are not good investments are talking about. And you know what, they've been right. Sure they haven't lost money, but they haven't made money either. And they aren't going to. Just go look at the benchmarks I linked to. Don't need a bunch of crazy talk about German Bunds!

Radagast

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Re: Long Term Treasury Bonds
« Reply #21 on: October 14, 2015, 12:53:01 AM »
LOL! What are you even talking about, hahaha? Nobody is making money on bonds. It's the macro economic story of our times. The Hunt for Yield. I mean, are you saying they ARE making money on bonds? If you're making money trading off foreign bonds on changes in currency, then hey...salud! But for normal people, all they have to do is go look at the return on their bond funds to see they haven't done well the past few years in the current interest rate climate. This is what people that have been saying that bonds are not good investments are talking about. And you know what, they've been right. Sure they haven't lost money, but they haven't made money either. And they aren't going to. Just go look at the benchmarks I linked to. Don't need a bunch of crazy talk about German Bunds!
We aren't talking about bond returns. We are talking about long term treasury prices and their effect on a portfolio. Small changes swing LTT prices wildly, and in unpredictable directions, which makes them a great diversifier for a stock heavy investor. By themselves they would be a horrible investment. See squiggly colorful lines above.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #22 on: October 14, 2015, 08:38:52 AM »

LOL! What are you even talking about, hahaha? Nobody is making money on bonds. It's the macro economic story of our times. The Hunt for Yield. I mean, are you saying they ARE making money on bonds? If you're making money trading off foreign bonds on changes in currency, then hey...salud! But for normal people, all they have to do is go look at the return on their bond funds to see they haven't done well the past few years in the current interest rate climate. This is what people that have been saying that bonds are not good investments are talking about. And you know what, they've been right. Sure they haven't lost money, but they haven't made money either. And they aren't going to. Just go look at the benchmarks I linked to. Don't need a bunch of crazy talk about German Bunds!

So your argument is that an 11.7% CAGR on an investment for 2 years is not a good investment.

We'll disagree on that one.

And you are also arguing that long term bonds cannot lose another 1% in yield despite the fact that's this very moment equally high quality long bonds from another developed nation are already yielding 1 % less than US treasuries.

So what do you imagine the total return on 30 year bonds would be if yield dropped another 1%?

LAGuy

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Re: Long Term Treasury Bonds
« Reply #23 on: October 14, 2015, 09:51:47 AM »

LOL! What are you even talking about, hahaha? Nobody is making money on bonds. It's the macro economic story of our times. The Hunt for Yield. I mean, are you saying they ARE making money on bonds? If you're making money trading off foreign bonds on changes in currency, then hey...salud! But for normal people, all they have to do is go look at the return on their bond funds to see they haven't done well the past few years in the current interest rate climate. This is what people that have been saying that bonds are not good investments are talking about. And you know what, they've been right. Sure they haven't lost money, but they haven't made money either. And they aren't going to. Just go look at the benchmarks I linked to. Don't need a bunch of crazy talk about German Bunds!

So your argument is that an 11.7% CAGR on an investment for 2 years is not a good investment.

We'll disagree on that one.

And you are also arguing that long term bonds cannot lose another 1% in yield despite the fact that's this very moment equally high quality long bonds from another developed nation are already yielding 1 % less than US treasuries.

So what do you imagine the total return on 30 year bonds would be if yield dropped another 1%?

My bad bro. Guess everybody else is wrong and bond holders are actually seeing 11.7% annualized returns (up from 11.2% from just last night!).
« Last Edit: October 14, 2015, 10:00:30 AM by LAGuy »

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #24 on: October 14, 2015, 10:19:01 AM »
11.2, 11.7, either ones a good CAGR in my book. And that is exactly what Tlt returned in the past 24 months. Do you dispute that?  If so please provide evidence (as I have.)

Also, I notice you are avoiding answering a direct question about what the total return would be on 30 year bonds with another drop of 1% in yield. It's a simple question.

LAGuy

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Re: Long Term Treasury Bonds
« Reply #25 on: October 14, 2015, 10:31:00 AM »
11.2, 11.7, either ones a good CAGR in my book. And that is exactly what Tlt returned in the past 24 months. Do you dispute that?  If so please provide evidence (as I have.)

Also, I notice you are avoiding answering a direct question about what the total return would be on 30 year bonds with another drop of 1% in yield. It's a simple question.

No sir! I do not dispute that one very specific bond instrument over a recent very specific peak to trough period has performed well! Following your investment wisdom, I too plan to short term trade by buying troughs and selling peaks for my future investing plans. I'll be rich in no time!

And yes, I too can't wait for the fortune in bond appreciation that I'll make when long term bond yields fall to 1%! I mean, who needs a high yield savings account that also pays 1% when you could tie your money up at the exact same rate but for 30 years!!!

Truly, this is some spectacular investing advice I'm receiving here. And I for one, thank you for the education I'm receiving here.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #26 on: October 14, 2015, 02:14:08 PM »
You need more education. that's clear.

Go back and re read the thread. I am not, nor is anyone advocating for short term market timing using long bonds or investing solely in long bonds as an investment strategy.

As mentioned above if I were a buy and holder I would barbell my bonds by going something like 25% long bonds and 75% short term treasuries.

The only point being made is that your fundamental claim that there is no rational reason to include long treasuries in a portfolio while intuitive is factually incorrect. You made a common error.

Yields can go from low to lower or can stay low  and in that case long bonds can be an excellent investment going forward.

This is exactly what has happened in the past 2 years.

To help you with the question that you have obviously been unable to answer, if long bond interest rates drop by another 1% (which is clearly a possibility given current interest rates around the world) a 30 year bond bought today is expected to return 23.5 %.  Again a great return.

Not saying it will happen. Im only saying it could.

I try not to make predictions. I find it to be a low probability proposition.


milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #27 on: October 14, 2015, 02:35:23 PM »

YoungInvestor

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Re: Long Term Treasury Bonds
« Reply #28 on: October 14, 2015, 03:30:20 PM »
You need more education. that's clear.

Go back and re read the thread. I am not, nor is anyone advocating for short term market timing using long bonds or investing solely in long bonds as an investment strategy.

As mentioned above if I were a buy and holder I would barbell my bonds by going something like 25% long bonds and 75% short term treasuries.

The only point being made is that your fundamental claim that there is no rational reason to include long treasuries in a portfolio while intuitive is factually incorrect. You made a common error.

Yields can go from low to lower or can stay low  and in that case long bonds can be an excellent investment going forward.

This is exactly what has happened in the past 2 years.

To help you with the question that you have obviously been unable to answer, if long bond interest rates drop by another 1% (which is clearly a possibility given current interest rates around the world) a 30 year bond bought today is expected to return 23.5 %.  Again a great return.

Not saying it will happen. Im only saying it could.

I try not to make predictions. I find it to be low probability proposition.

Of course, nobody denies that lower interest rates mean higher bond prices, with very ample effects for long-term debt, but the point I and others were making in the thread is that we don't see how rates could conceivably go much lower, while there's quite a bit of upside to interest rates at this point.

But yeah, I agree with you as a whole. The current context makes long term treasuries too rich for my blood, though. What with rates being declining for a couple of decades or so.

milesdividendmd

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Re: Long Term Treasury Bonds
« Reply #29 on: October 14, 2015, 05:11:50 PM »

You need more education. that's clear.

Go back and re read the thread. I am not, nor is anyone advocating for short term market timing using long bonds or investing solely in long bonds as an investment strategy.

As mentioned above if I were a buy and holder I would barbell my bonds by going something like 25% long bonds and 75% short term treasuries.

The only point being made is that your fundamental claim that there is no rational reason to include long treasuries in a portfolio while intuitive is factually incorrect. You made a common error.

Yields can go from low to lower or can stay low  and in that case long bonds can be an excellent investment going forward.

This is exactly what has happened in the past 2 years.

To help you with the question that you have obviously been unable to answer, if long bond interest rates drop by another 1% (which is clearly a possibility given current interest rates around the world) a 30 year bond bought today is expected to return 23.5 %.  Again a great return.

Not saying it will happen. Im only saying it could.

I try not to make predictions. I find it to be low probability proposition.

Of course, nobody denies that lower interest rates mean higher bond prices, with very ample effects for long-term debt, but the point I and others were making in the thread is that we don't see how rates could conceivably go much lower, while there's quite a bit of upside to interest rates at this point.

But yeah, I agree with you as a whole. The current context makes long term treasuries too rich for my blood, though. What with rates being declining for a couple of decades or so.

I've got no problem with your decision. I've got no problem with using total bond or even short treasuries as your only bond position.

A long term treasury position now is essentially a bet on deflation, which is not a stupid bet, all things considered, and plenty of smart investors like Jeff Gundlach are making precisely that bet and have been cashing in on that bet recently, despite the "interest rates are too low" logic expressed above.

As mentioned above I don't have much faith in my ability to predict the future so it's not a bet I'm making personally.

innerscorecard

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Re: Long Term Treasury Bonds
« Reply #30 on: October 15, 2015, 12:39:54 AM »
I own some TLT as part of my overall asset allocation.

Yes, long term treasuries are volatile (they move just as much as stocks, but often in the opposite direction) so it's important to understand what you're getting into. But they can be stronger stock diversifiers even than corporate bonds and have less credit risk. And depending on your portfolio strategy the volatility can work in your favor for rebalancing (buying low, selling high). 

Looking at any asset in isolation you can identify reasons to love or hate it. The most important thing is to understand how they fit into your larger investment plan. For some good discussion on how LTTs can function in a diverse asset allocation, I suggest reading about the Permanent Portfolio.


That's (Permanent Portfolio and Ray Delio's All Weather Portfolio) where I got the idea for TLO...no commission at Schwab. I own a small amount now....and have watched them the past month or so...and they do seem to move in the opposite direction as my equity ETF's.....seems like a good hedge, better that a total bond fund?....we will see.....Trying to generate more income as well.

Why don't you buy them directly, as The Permanent Portfolio recommends?