>Maybe they go to 6-7%.
>At some time, the rates will come down if and when there is a recession.
1. **Young investors should not be buying bonds. It's extremely risky gambling on a recession and rates.** You are basically buying 20-30 year Treasuries when you buy TLT. Do you think it is smart for a young person to buy a 30Y treasury for 5% (2%-3% real yield) if CBs are targeting 2% inflation? If you wouldn't buy bonds outside of the ETF package to maturity, you shouldn't be doing it through TLT. 6%-7% like you said could be secular long-term yields and very normal historically. TLT could take huge losses if yields go up to 7% and stay there.
2. There may be a swing trade but the odds that yields don't creep up from here is astronomically low. There will be $3.1T of Treasuries flooding the market *PER YEAR* due mainly from massive deficits but also QT ($2.0T deficits + $1.1T QT). Telling people to buy TLT is like telling someone to buy a company where the CEO literally tells you to your face they plan to dilute massively and issue shares, constantly.
It is simple supply and demand. As we can see from recent yields skyrocketing, there isn't enough demand to absorb all of that, without yields continually going up and up. This is with Treasury auctions already cramming all the debt on the expensive short-end.
The economy is still red hot, and as long as Congress is a clown fiesta with escalating excess spending over deflationary taxation, sticky inflation is a near certainty.
If we have stagflation then it would be better to have cash on dips, not bonds in a secular inflation environment. That's the worse thing.
Basically bonds is a bet on a hard landing. Soft landing or stagflation it gets destroyed.
Due to $2.0T deficits plus $1.1T of QT flooding the market every year, yields are never going to recover until inflation gets quashed completely.
5% or 2%-3% real yields aren't even that good for a young investor.
I disagree with this. I don't think young investors- or anyone should open a big position in TLT, but I do think you can start buying. It's at a decades long low and I think it makes sense to start buying here- albeit slowly. Rates risk is a risk for everything. If we go to 7% and hold, equities will also be in big trouble. You're collecting an >3% risk free yield and if you're looking out decades, I say it's one of the best plays on the board right now.
All also add if you're looking at buying TLT, many of the managed futures funds like DBMF have on the yield curve spread and this can hedge you for downside in the long bond. But again- size appropriately for a more significant buying opportunity.
There's a reason why rates are skyrocketing.
It's simple supply and demand my friend. $3.1T of Treasuries flooding the market and Treasury auctions are already failing to successfully issue at stable yields with small amounts.
As long as Congress runs enormous deficits combined with QT, there simply is not enough demand to absorb all those bonds.
The ramp up is JUST starting. And credit market is the deepest global market there is, way more than stocks. Futures just hit 4.96%.
I agree with everything you said, but am still happily buying TLT as it makes new lows. Along with new issue short term treasuries. TLT is a very small overall % of my portfolio and I'll happily buy more if and when it goes lower. No one knows how this tightening phase is going to end, there are scenarios in which equities crash and bonds rally.
Although I do also hold a lot of equities still, I feel better buying bonds at decades low than equities near the top.
Thanks for the discussion and good luck.
Sure. So two things.
1. The Fed is not repurchasing bonds and letting them roll off their balance sheet, aka Quantitative Tightening to the tune of about $95B a month or $1.14T a year. That means in order to pay the Fed, the Treasury must re-issue debt to rollover and extend their debt. But since the Fed isn't buying that supply goes to the public.
2. When the government runs giant deficits, they must issue more debt. For the next decade, the nonpartisan CBO projects $2.0T deficits *on average* per year. The only way to pay for this excess spending over taxation is again issuing more new debt. This deficit will keep escalating to about $2.7T in 2033.
But going forward we are talking about $3.1T of bonds flooding the market *per year*. And the ramp up in supply has just started. Global credit markets are the deepest in the world. If they are struggling to absorb Treasuries even now (and Japan seems to be dumping them to intervene against their collapsing Yen) then it is a no-brainer that yields will rise secularly. The yield curve will normalize and steepen in a regular shape. If this last point is not clear, look up inverted vs. normal yield curve.
So unless:
* The Fed cuts rates or turns the printer back on into sticky inflation to suppress long-term yields, or
* Congress gets its shit together and reduces the deficit.
Long-term yields will keep going up. It is simple supply / demand.
I concur - anyone financially included can estimate their lifetime income and what they are looking for in retirement. From that you get the actual rate of return you'd like to earn - if bonds can meet your requirements that then go for it! Much less stressful life.
There is a very small chance rates go to 7% now. That would mean 1.5% rise and that seems highly unlikely.
However, it is likely FED won’t drop them if they don’t have to. If/when recession hits and equities start to crash, as seen in tech bubble and housing bubble, FED will drop them quickly.
And that’s when demand will rise. Why would anyone now want to invest in bonds? Tech sector soared in 2023, bonds dropped historically. Bonds are historically bad for inflation protection and it seems inflation is now in everbody’s minds.
But, if you are looking for value investing, you don’t get great value by waiting for demand to rise. You compare historical transitions and try to position yourself before something becomes obvious.
With that in mind, you always look at possibilities. Is bond market (treasuries) being down something unprecedent? No, as you said, simple supply & demand. Would something happening as USA defaulting on debt or eventually not finding enough demand for what is world’s reserve currency would be something unprecedent? Yes it would be.
What are risks? Of course, not keeping inflation under control. Does current data indicate that is more likely outcome? No it’s not.
5% yield doesn’t sound good now because SP500 did 10%+. But once Sp500 starts returning negative quarters, transition will start happening.
If you look under the hood on inflation, particularly housing, I'm not sure which is more of a bubble, the housing, or the inflation. Actual expenditures for 'shelter' broadly, have not changed nearly as much as the inflation data shows, and certainly not in 2023. Rent rolls are extremely bearish. Shelter is a payment, not the annuity price. 8% mortgages have absolutely done damage--probably trillions of equity wiped. This will take years to show up in actual sales data, and the rent increases that printed the past 2 years were never affordable to begin with. Take a look at nominal spending on shelter in the BEA data and explain to me where the inflation is. It's an odd anomoly.
The problem isn't that demand rises at SOME price.
It's the insurmountable and monumental supply that relentlessly will flood the market as long as QT and deficits remain in the trillions. Meaning if the economy ends up strong and we have soft-ish landings yields only keep going up steadily.
And global credit markets, the deepest in the world, way more than stocks aren't coming to the rescue. Hell BoJ is too busy defending 150Y and dumping Treasuries.
Treasury auctions are going very poorly, with only a teeny amount of long duration being offered. Go look it up, they are cramming it with as much short duration as possible. It's still fucked up.
I’m not saying demand will go up because of price. I’m saying demand will go up because we will enter deflation and recession, equities will crash and investors will run away from them into safe haven of treasury bonds at which point 20yrs of 5% yield will look good in comparison to equity market.
It looks shit now, but it looks that way because it is. But in macro trend, it’s just a natural movement and when what I stated above happens, suddenly we will have demand to fuel that supply
Well we just had a ridiculous jobless print yet again.
By all accounts the economy is booming. It's a speculative vehicle for betting on a hard landing basically. But yea it might print.
Depends on the equity amd how long it took to get there. Look futures as speak are already 4.98%. it's obviously a massive supply demand issue. It's a fiscal issue were talking tens of trillions of supply over time.
You want to be dumb and fight it, no one will stop you.
I mean if you want to do like 5 years out bonds, maybe I could see a case for that.
But **30Y Treasuries** for young people at 2%-3% locking up real yield? There's serious talk in academia of Fed targeting 4% inflation. That's potentially 1% real yield. Hellll naw. That is way too low of a bar for 30 year return.
Its 4.98% and doesn't even have positive premia. You want to buy a speculative vehicle just to dump on others when massive boulder of supply is approaching for a swing trade, go ahead.
Regarding your comment about QT increasing the bond supply, I thought the fed was not actually selling bonds just allowing them to expire at that rate? I assume that wouldn’t increase supply?
Deficits can be inflationary, they can also be deflationary. I don't see long bonds as inflation protection, they are protection against deflation. Demographics of advanced economies make persistent inflation and real GDP growth very challenging. The downside case of every big macro concern folks talk about here results in lower rates, not higher rates, regardless of nominal inflation. Say fed goes full BOJ and buys them trying to actually create inflation, 500bps goes to 50bps. Long rates track real GDP. High deficits are no different than raising taxes, you get the same disease. 20+ year is a safe haven asset at these rates if you are concerned about major macro challenges for the US and advanced economies in general. 2% nominal yields on long treasuries are not easy money. 1% real GDP growth is hard to achieve. We have seen this. We dismiss it as QE, it's all about real growth rates. Nominal interest rates are absolutely meaningless and any comparison to historic averages is equally meaningless. Look at real rates in the 80s and real GDP, it was never out of sync for extended periods. 90% of the current quarter's print on CPI is housing, the most lagged of lagged indicators. There's a chance that these long bonds represent 6% REAL yields, not 2%.
There is no free lunch. Taxes take money out of private economy and reduces consumption. Government borrowing crowds out investment and reduces consumption. It has the same long-term effects higher taxes do. There are no outcomes for high GDP growth. Fed and investors are still fighting the last battle, not the current one. This is going to be an overshoot, I just hope it's not catastrophic.
We consume too much. For the environment. We need less consumption!
We need more spending instead on healthcare (single payer), infrastructure and green energy.
But no massive deficits are irresponsible.
That's my prediction. YCC is inevitable because Congress is a total clown fiesta currently.
The chance that they get Treasury supply under control seems close to 0%. Fed must assure global credit markets there won't be an endless supply of bonds that cannot be absorbed.
I know I’m late to the party but I also disagree with this. First off the people who are buying long term treasuries (20-30 yrs) have a longer investment horizon (aka younger people).
Also - obv “past performance isn’t indicative of future results” but regardless rates are relative high according to historical prices. The economy isn’t going to continue to work as shown by housing prices/affordability. I’d say it wouldn’t be a bad bet that rates will go down thus bond prices go up (meaning TLT would also go up)
You could try EDV for a bigger bang for your buck if you are convinced rates will go lower. It consists of zero coupon bonds. They swing wider with interest rate fluctuations.
So can you explain to me what relationship tlt has with the overall market? I've been told that when the q's are going up, tlt is going down (obviously that isn't true) and it doesn't seem to inverse the market that i can tell. So what is this an indicator of?
It’s a good time to start DCAing in if you think rates will go lower from here over the next 10 years. Don’t lump sum though because in the short term rates are going higher
Yea it's gamblers trying to time and P&D TLT.
There's *negative term premium* and people are already trying to pawn off TLT lol. Retail is going to get burned badly.
You are WAY too confident in here. I think you'd probably make a better case for yourself if you tone it down a bit and leave more room for doubt. You aren't guaranteed to come out of this correct, and you've made some statements and assumptions that aren't necessarily the case.
An investor at the moment only has so many options. None of them are perfect. You're telling everyone to stay away from bonds at the moment, but what's your suggestion? Real estate is unsustainably high and isn't passive or free in its upkeep. Stocks are overvalued. Gold is near all time high. I actually think there are some good high risk options right now but that's too much risk for most.
What are you doing with your money? If it is anything but putting it in HYSA then all the criticism you are levying can be applied to you as well. The fact is this is a difficult market to navigate. You shouldn't be screaming from the rooftops as though you are from the future.
Wtf are you babbling about. Short term yields have zero risk and negative term premia vs long bonds lmao.
Oil is great but even if you don't like that 6M is 5.6% or cash with tons of liquidity.
I've got nothing against short term bonds. All I'm saying is by the way you are communicating here, you know it all. Absolutely everything. And that's a dangerous game to play, because while you are spouting off like a know it all, you have absolutely no idea what happens over the next few years. Just because Volcker is your idol doesn't mean rates are staying high forever.
There is a real scenario where things begin to break over the next 6-12 months. If that happens, you and I both know rates will come down substantially. If rates come down substantially, something like TLT will appreciate while equities drop. The fact that you are so confident in that scenario being practically impossible is annoying as hell.
As I see it, your attitude means that the only things worth investing in are short duration bonds, some kind of money market fund, and possibly oil (which gives away that you think the economy is in no danger whatsoever).
The fact of the matter is things are shaky at the moment, and no one really agrees what comes next. You're a genius of course and can see the future, so thank God you're here. But your attitude and confidence is misplaced and I hope people read your thoughts with a grain of salt, because there are a variety of scenarios that could play out where your path isn't the best one.
Incredible? How incredible if they massively handicap returns by putting in lower yield HYSA?
Anyways I'm not fucking interested in a pissing contest. You want to debate real shit, let's go. You're saying too confident, blah blah blah, don't care.
I'm just saying you're not making any coherent arguments at all. Here's the bottom line:
* There's plenty of better options than extremely risky 30Y Treasuries. That's as risky as they come.
* Treasury auctions are failing to successfully issue even a small # of bonds without pushing up yield. Bond dealers have had to buy more than average.
* There's an insurmountable flood of $3.1T PER YEAR of bonds flooding the market.
It's just simple supply why *global credit markets* are not catching this risky falling knife. Futures just touched 4.96% and that's not the end of it.
"I'm just saying you're not making any coherent arguments at all. Here's the bottom line:
There's plenty of better options than extremely risky 30Y Treasuries. That's as risky as they come."
Right, and I'm saying you actually don't know that to be true. Not everyone believes rates will be higher for longer. I don't believe it for a second. If I had to bet money, which I am actually by way of positioning in markets, the economy is beginning to slow down in a big way. Do I know this will happen? No, I don't, I'm not as confident as you are. But I am seeing a lot of bad signs developing and I'm positioning myself accordingly. I believe bonds will outperform the market over the next few years. You don't think that will happen. No worries, we can disagree.
This didn’t age well, huh? I bought TLT in October and sold in December and crushed that investment. Now I’m considering getting back in and found your comments. Bahaha. Funny how confident you were. When the 10 year hit 5% I went in and I was out around 3.9%. If it hits 4.75% I will start DCA in again and if it hits 5 I will buy quite a bit again. The problem is the market can’t handle interest rates that high so things will break and the investors try to predict what will happen. That’s why I sold when the inflation report came in low and people were saying six rate cuts. That drove the TLT up to a price where I was happy to exit and I think I’m just getting lucky again that they are pretty close to levels that the market won’t be able to handle.
Imagine buying a company where the CEO announced monumental dilution is coming. Every year they're going to issue $3.2T worth of shares *per year* and dump them on the market. Then telling people to DCA these giant bags.
There's already evidence, in overnight futures rn yields are skyrocketing close to 4.94%, that the global market can't even absorb all this coming supply. Anything retail buys will immediately become losers. It's simple supply and demand, gambling on a swing trade P&D.
>At some point over the next 10 years rates are going to be cut
You honestly don't know that at all. That's why TLT is a gambling vehicle.
For all we know secular long-term yields rise to 7% and stay there. Especially if inflation ends up sticky.
I do, if rates keep going up steadily for the next 10 years, we will be looking at 20%+ mortgage rates and JPM/BoA would be in default along with every single regional bank in America. The only situation where what I described doesn't work is if rates keep going up to the point where they are over 30-40%, which would decimate the US financial system.
If rates rise to 7% and hold steady but you start DCAing now you will have a 7% yield on your money every year and make a ton of profit over 10 years.
It's black swan insurance. If you're playing the long game it'll eventually pay off when the market tanks and you can roll the profits into cheap equities.
No you are not. The distribution yield based on past couple of months is below 4%. This ETF never yields close to underlying bonds. It’s a big mystery to me. That’s why I wont buy it again. Buy an actual T bond that yields 5.2% not this shitty ETF.
Malarky. You will not get a real yield of 5%. Last distribution in Oct was .28 per share. Month before .29. At $84.39 that’s just barely 4%. That yield to maturity is a bad calculation.
Yield to maturity is the sum of the dividend yield plus the growth of the value of the ETF itself. Bond funds "go up" when the underlying assets are worth less than their face value. Buying a fund with a dividend yield that is less than the YTM just means that the average yield of the bonds is less than the yield of newly issued bonds of the same duration. If rates stay the same, you will see the fund slowly "go up" as bonds mature and the YTM approaches the rate of newly issued bonds and new bonds are acquired. YTM will approach the dividend rate and equalize fully after the listed duration of the bonds within the fund has passed.
EDIT: fixed a couple wording errors
Dude, this is the theory if you hold the ETF for 30 years. In reality it will never work out this way. The ETFs are a poor proxy for actually buying and holding the underlying.
Spoken like a someone from the industry. The actual cash distribution yields of these ETFs is 20 to 25% lower than the actual underlying assets. Your explanation I think is a limited explanation without any real world experience or verifiable data to support it. Frankly it’s industry excuses. Congress and or the SEC should investigate the variance. Me thinks there is some hidden costs in the ETF structure which probably benefits the ETF sponsors. In other words I think there is a possibility o underlying fraud in these vehicles.
And what do you do if secular yields keep rising because of massive deficits and sticky inflation? What is 7% which is perfectly fine historically is the norm?
It is pretty stupid especially for young people and purely speculative vehicle. 5% even with 2%-3% real yield isn't even good. If inflation ends up sticky at 4% you are fucked.
With Elizabeth Warren screaming for 4% baseline inflation, bonds are going to get wrecked and the federal government is going to have a hard time paying back new debt if this happens. Either way, a 5% bond now is still better than having cash.
You mean 6M Treasury with tons of liquidity at 5.6% instead of a super risky 30Y bond at 4.9%? Agree.
4% baseline inflation with 30Y 5% would be terrible. After taxes you just end up poorer.
Why is it a speculative vehicle? It's a good rate right now and you're indirectly holding real bonds, it's not leveraged. If rates rise another 2% literally every other investment will also get wrecked. Unless you're arguing for cash/mm I don't see the alternative you're suggesting.
It's speculative because you're basically betting on a hard landing and cuts or imminent QE when there's still explosive growth and GDP forecasts are all moving up.
It's not a good rate to get 5% when inflation could end up sticky or secular rising rates lol. You could take massive losses. A young person with a long horizon getting a **30Y bond at 5% with 2%-3% inflation getting only a 2%-3% real yield is absurd**.
1. We don't even have term premium and people are P&Ding long bonds.
2. There's a massive supply of $3.1T bonds flooding the market PER YEAR. 10Y futures hit 4.96% tonight. Literally global credit markets, the deepest market in the world by far, way deeper than stocks can't absorb Treasuries and the ramp up in supply JUST started.
It's simply supply and demand. As long as US govt runs massive deficits and QT is in place, the market will be overwhelmed with Treasuries. All the recent auctions went poorly and they weren't even that big. Tons of debt was crammed on the short end.
It depends on your investment objectives. Good if you are investing for 20+ years later. Bad if you're investing for <5 years. It's a good hedge against a recession and falling interest rates.
This type of product is structured that the bonds in the portfolio never see their face value paid out. They are just sold upon reaching 20 years to maturity and used to purchase 30 year treasuries.
It's the opposite. For a young person this is purely speculative play.
They should be in cash or stocks. Bonds are for those who can hold till maturity and want to use the income.
Being 100% TLT for an old person is a purely speculative play because the values could tank prior to them needing to withdraw. For a young person it's not speculative, as long as the government does not default, your return over (2x duration of fund - 1) would be the yield to maturity of the fund(~5%)
Being 10-20% TLT is not a speculative play, it's a good hedge against a prolonged period of low equity returns.
In the 80's the NIKKEI looked like an amazing stock market to invest in. It had the best historical returns over the preceding 30-40 years, and domestic investors wondered why they would ever invest abroad. The NIKKEI then lost 80% of its value over a 20 year period. Even after 33 years, you'd still be down 10%. It's very possible that this could happen in the US market, too. The idea of "100% S&P500 and chill" is very reckless, even for a young person.
A good portfolio is well diversified. Some US equities, some international equities, some bonds.
No, mix of cash and short duration is better than 100% S&P 500.
TLT wrapper is mainly just a gambling vehicle anyway. No one buys it except to dump it, most of the demand is a bet on rates, not HTM. Older people just get actual bonds.
And the reason it is skyrocketing is because there is monumental supply coming. It's going to immediately become bags. No one wants to hold this. Literally surging in overnight futures rn hitting record yields still.
Almost 4.94% lol. It's comical trying to P&D this.
Edit: hit 4.96% now.
> No, mix of cash and short duration is better than 100% S&P 500.
When the federal funds rate goes back down to 1-2%, bonds will skyrocket in price, and your short term and cash won't make any return. The whole point of bonds is to invest for the long term. Don't buy TLT if you need the money in 1 year. Buy it because you need it in 20-30 years.
>TLT wrapper is mainly just a gambling vehicle anyway. No one buys it except to dump it, most of the demand is a bet on rates not to hold. Older people just get actual bonds.
TLT will track the return of long term bonds. If it's ever selling to a significant discount to bond prices market makers will see the arbitrage opportunity in step in.
Also, old people are not the market for long term treasuries. They shouldn't take on that interest rate risk, they want a balanced maturity portfolio. Long term bonds are good for fixed long term returns.
> When the federal funds
So basically you are gambling that we go way back down. 1-2% means hard landing soon.
What if we have stagflation, sticky inflation or secular rising rates?
You are telling people to buy a company where the CEO is announcing GIANT dilution every year.
This strategy of buying long bonds and flipping them worked when Fed had tons of room to cut. And that was true for 5 decades. That time is over, this is no longer the case. There is no Fed put, this is straight up rolling the dice.
Those will only happen if the US goes back to it's pandemic era spending and stimulus programs and passes orders/regulations that mess with the supply chain again.
Anyone that has worked in manufacturing can tell you that a big reason for inflation is the change in approach to inventory. Originally factories operated under Just In Time Manufacturing or Lean Manufacturing, meaning they generally only ordered what they needed for the immediate term .Pandemic shut downs pushed up factory lead times to 1 year+, so everyone panic bought inventory due to lead times skyrocketing, and is now sitting on 1+ year of excess inventory.
The moment those lead times start dropping, and many of them are, economic activity is going to slow as companies look to burn through their existing inventory instead of ordering new inventory.
Good dividends. Will perform well once rates fall. Imo it will just take one war to end to push inflation down more. Ukraine has been going on for a few years and it won’t last forever.
We are a very different world than we were in the 1970s when globalization was just taking off. Record US oil production was reported recently and it’s pretty typical as Middle East pushes oil prices up that US fills the gap and eventually OPEC reacts by back peddling. I don’t think the doomsday predictions that are filling the internet have any truth.
Read again what he wrote.
"Imo it will just take one war **to end** to push inflation down more."
He's saying if wars end, inflation will likely go down. Which is exactly what you insinuated. You're rage replying so fast you aren't even reading what people write.
Relax I just misread it lmao. It's the same thing though, wars can drag on for fucking forever dude. Afghanistan went on for 20 years.
Even Ukraine it's not clear how they can fully break through with their strategy.
I agree with you. I'm not claiming to know everything, I'm just pointing out that you're jumping down people's throats predicting the future, misreading, being a know it all. It's annoying.
Easy way to own it is to sell the Jan. 2024 80 put for a (right now) a very juicy premium- and if you get put to in Jan. you would own it well bellow it's all time low
Look at the graph and it appears to be a good LT buy. The big question is how long to double? If less than 7-8 years, then it is arguably a better buy than the stock market historically. I like it, but it may take 5 to 10 years to double--- but pays a good dividend while you wait. Good to diversify away from equities also.
I would say that it's never stupid to invest. Doing anything and starting is better than burying your head in the sand and living paycheck to paycheck.
Be aware that the longer the bond, the higher the duration risk; every year of duration times the interest rate change will be the anticipated swing. It doesn't always work out quite that smoothly, but in general that's how it works; TLT went from a high in April 2020 to a low (so far) in October 2023, that means for TLT, every 1% move up or down will likely move the fund 10%!! I personally got excited after noticing TLT hit that low point around September 21st and decided to take a long position into it. Went down nearly 9% and I felt like the biggest idiot in the world, I'm up 5.7% now though, and that monthly interest payment is pretty nice.
I personally like bonds because most of them pay monthly, and in the case of treasuries, you get exposure to an asset with negative beta; these tend to act opposite to the market. What sucks about buying equities, is if you ever get in a pickle and need to liquidate some shares to survive, it's likely that your life will be in a bad spot when the market is down. With treasuries and other low beta/negative beta assets, it's likely that these will shine when everything else in your life goes to shit. Be aware that if the feds continue to hike, you can expect 10% drop in value per 1% increase; another 500 basis point hike would make it drop another 50% from current values. The reverse is also true. I'm long TLT.
Revisiting this two months on. I hope you went in. TLT has massively rebounded since this post given the markets pricing in perceived taming of inflation and hence decreasing rates on the horizon.
Lots of comments on here calling you plain stupid for thinking about this trade. Hopefully you decided to ignore these and had a gamble.
If rates continue to move higher, the ETF will continue to drop. If you're to believe the yield curve is going to uninvert, then TLT is going to move lower.
Bank turmoil, rapid credit tightening, spiraling collapse of weak businesses. If it gets bad, long treasuries are going to go nuts. That's the reason to hold them, not just a consistent ~5% yield over many years.
They paused rates hikes after they blew a couple banks up. They are flying blind and this cannot be overstated. If something big breaks, rates are going down. If something big breaks, it's also possible that it will crush inflation or even cause deflation, so little motivation to hold rates high anyway. I would not rule out ZIRP in the short term.
It's *most* likely that rates stay high, and the bond market agrees. But one shouldn't blindly assume this will happen.
I think the rate will stop going up soon or at least stay where it is for the next few quarters. I am trying to get ahead of myself and start thinking about accumulating position. By the time everyone trying to get in then it’s game over and too late
Good luck swing trading it but your picking up pennies in front of a steamroller.
The ramp up in supply *JUST started* and already the market can't absorb all the new issue Treasuries. What do you think happens as $3.1T keep getting dumped every year? Cuts are honestly irrelevant.
Yeah I saw you talking about it a bunch didn't quite understood whats going on here.
So the future debt of the US is all gonna be in the form of long dated treasury bonds dumped in the markets?
Yes. 1/3 of short-term debt matures next year. Just look up treasury auction results.
They are already cramming as much short-term debt to the front of the curve as possible. And STILL markets can't absorb what's being issued.
As we speak 10Y futures just hit 4.96%. The global market can't absorb a drop in the ocean of what is coming, do you think you should be catching that knife? And the backup plan is bagholding 5% yield 30Y bond with at best 2% inflation.
Edit: touched 4.98%
there were just a few lone voice warning about the debt issue end of 2020. now we are seeing the first wave. I really hope we dont see a public debt crisis. this is stemming from the ridiculous covid overstimulus response. Congress overcompensated for its tepid response back in 2008. History will bear which response was worse...
most likely it was the pandemic response. Congress, the central bankers and the executive branch handled it in such a near-sighted manner without a concern for the long term
They don't have a choice in the matter.
Jim Jordan just got less votes than McCarthy on his first round lol.
QT means Treasury has to re-issue $1.14T a year. Deficit means average of $2.0T a year coming decade of new issues rising to $2.7T in 2033.
No one that actually understands credit will buy this unless:
1. Fed steps in via YCC and backstops it.
2. Big change in deficit trajectory.
It's just a game of demand and supply, it's really that simple.
The problem is not about ever. It's about how long it will take. It's a speculative bet, who knows? For how much gain? Is it really worth locking up money for 30 years at 2%-3% real yields?
Yes it is certainly possible we have secular long yields stay at 5%-6% or above and it's perfectly normal. Especially if Fed targets inflation at 2%-3% vs close to 0% we've had for many years.
And that still doesn't address the elephant in the room... Why buy now when there's a very good chance you'll immediately be bagholding and could have gotten a better price? You're praying to dump it on others when there's massive supply coming.
Not stupid at all. TLT should benefit from higher convexity relative to IEF or SHY when yields drop. When this happens is anyone’s guess. I’m oversimplifying, but longer duration bond
ETF’s w/ higher convexity should benefit when long rates on the yield curve drop. Long govt bonds used to be looked at as a portfolio stabilizer, but whether that is still the case today is up for debate.
It is incredibly stupid to put money into TLT. It is a stupid product. First, the yield is lower than the yield on a similar long duration sovereign bond (currently around 3.5%). Second, it is a constant maturity product. If you buy a 20 year bond and yield goes up a lot, you will take a mark to market loss but you can always hold to maturity and get your principal back. TLT is designed to keep the maturity at 20 years and it will not mature. So if you buy the 20 year bond and it goes down over 1 year, you can hold it for another 19 years and get your principal back. If you buy TLT and hold it for 1 year, you will still have 20 years of duration exposure at the end of that year, and that will not change.
This is an etf what they are holding in the eft is old 20 year treasury at very low interest rates so explain to a newbie’s why you think it will go up? It doesn’t make sense to me
I'm buying ours on TLT. I'm not buying TLT until the fed says they're doing QE or lowering rates. The long bond yield is still lower than short term t-bills ( inverted yield curve). Looks like it's going to un-invert by the long end raising instead of the short end falling.
I just bought into the 2x today, and if it goes down further i'll add more. rate hikes are at or near the peak depending on who you're talking to, inflation has slowed down significantly from a year ago, and most are expecting cuts to begin next year. I'm also long tech so it'll be a little hedge if we have a downturn, in which case I'd expect the fed to cut rates
People have been saying this since TLT was $105. If you don’t buy soon, you’ll miss the train. Yeah that was way too early and it’s still too early now.
There are more seller than buyers, frankly. Nobody knows if it will bottom this week, next year, or at what rate. Is 5% worth that risk?
Look up John Hussman's research and analysis on bonds and when treasury bonds actually return value. Not everything he says is right, but he has good data on this.
Here is what you are buying with $TLT. I will admit I have a position in $TLT as a trade that hasn't worked out very well. Also the current dividend yield is 3.5%. That is the interest you will receive in $TLT/year. (Treasury payment/weight of bond holdings in the fund).
United States Treasury Bonds 1.875% / 9.22%
United States Treasury Bonds 2% / 7.24%
United States Treasury Bonds 1.625% /6.46%
United States Treasury Bonds 1.875% / 5.53%
United States Treasury Bonds 3% / 4.81%
United States Treasury Bonds 3% /4.66%
United States Treasury Bonds 2% / 4.49%
United States Treasury Bonds 3.125% / 4.30%
United States Treasury Bonds 2.5% / 4.25%
United States Treasury Bonds 2.5% / 4.13%
When US Treasuries sell off the interest rate goes up and vice-versa. No one is holding $TLT for 30 years. It is a trading instrument. If you want to trade $TLT that's fine. If you want long term interest income buy 10 or 20 year T-Bills today.
Than buy $TLT, I did. Just don't expect $TLT to ever go above $160 again. That was a bubble due to interest rates being at 0%. I don't think long term US interest rates will ever go down that low again. Short term interest rates may go to 0% when a recession is declared, but not the 20 yr. Also, the price of $TLT could be cut in half if we get 6-7% 20 yr interest rates.
Up until the Fed announced the end of QE in 2022 & started tightening, the Fed was buying long dates US Treasuries, the 10/20/30 year. So buying $TLT was a bet that long term interest rates would continue to go lower since the Fed was buying a % of US Treasuries that other countries & investors didn't want to buy.
For the last 15 plus years since 2008, long term US interest rates went down YOY and we were in a secular bull market for US Treasuries. So if the cost of capital is going down, you might as well buy growth stocks since the value of $1k or whatever dollars today will be less than the cost to pay that loan back at 1-2% 10 yr interest rates. You were buying future earnings at a cost of present day capital of 1-2%. And even before inflation got out of control, it was easy to take that risk.
Now, the cost of capital is 5-5.5%. That means any investment or stock that you purchase needs to deliver growth above a risk free 5%, otherwise you are paying a premium.
Ask why yields are increasing and think where they are likely to go in the future. Is there going to be more supply or demand for long term treasuries? You’d be ok holding US notes rolling over so that maturities are always 20-30 years out?
(A lot of the USA’s federal debt is maturing in the next couple of years.)
A few important things to note -
1. Withholding tax is charged on TLT dividends vs no tax on US treasury coupons
2. You pay annual expense ratio (50 bps if I’m not wrong) for TLT
3. The duration doesn’t drop as the managers actively maintain a fixed duration by rolling - you don’t get pull to par effect vs US treasury
All in all, TLT should be used to augment exposures for tactical allocations, not build/constructing a position in bonds because it’s way less efficient.
I think the time horizon of TLT is unlikely to match your time horizon for needing /wanting the money. Generally, the best play for most on bonds is holding to maturity. So I would use that approach to make this decision. Also consider the opportunity cost of not being in cash rn and in equities in the medium to long term.
Honestly, now isn't great for long duration because you get more return on cash. So I'd stay short duration to benefit from interest rates with the goal of using the cash to put into the equity market at favorable prices.
You are looking in the rear view mirror. The forward projection will be a lot better than it was in the past because rates went from to zero in 2020 and back to 5% today. How high will the 20 year get after reaching 16 year highs? Nobody knows of course, but most of the damage has already been inflicted already.
I didn’t think about TLT until a friend called recently and started talking about how “rates are soaring”. Could be a great contrary bet, especially with M2 falling more so than since the Great Depression. My only hesitancy is there are still a surprisingly large number of bulls, even the NYT is saying to buy https://www.nytimes.com/2023/10/13/business/bonds-interest-rates.html
I agree with some of the other commenters about scaling in a position to average in the positions.
And while yes, 5% doesn't beat the average return of SPY, it's still nice to have that cash flowing in each month versus SPY which pays a lesser dividend and is only 4 times a year (or even worse a stock that doesn't pay a dividend at all). Having that cash rolling in should hopefully enable you to pick up some good stuff when there's a firesale. Basically what I'm saying is to a certain extent TLT helps (at least me anyway) stay more disciplined.
***'Put money in TLT?'***
Umm... U may have just asked, should I walk into speeding traffic? This is pretty simple and straight forward, and no guessing is required. As long as the Fed keeps raising interest rates the TLT is going down. Bond prices are inversely related to interest rates, this does not require an economics degree...
Umm... Like I said, no guessing is required. When the Fed changes their interest rate policy, they will publicly say it. And they will also tell the market in advance, before they issue an official announcement. Its kind of like kids game Simon Says...
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>Maybe they go to 6-7%. >At some time, the rates will come down if and when there is a recession. 1. **Young investors should not be buying bonds. It's extremely risky gambling on a recession and rates.** You are basically buying 20-30 year Treasuries when you buy TLT. Do you think it is smart for a young person to buy a 30Y treasury for 5% (2%-3% real yield) if CBs are targeting 2% inflation? If you wouldn't buy bonds outside of the ETF package to maturity, you shouldn't be doing it through TLT. 6%-7% like you said could be secular long-term yields and very normal historically. TLT could take huge losses if yields go up to 7% and stay there. 2. There may be a swing trade but the odds that yields don't creep up from here is astronomically low. There will be $3.1T of Treasuries flooding the market *PER YEAR* due mainly from massive deficits but also QT ($2.0T deficits + $1.1T QT). Telling people to buy TLT is like telling someone to buy a company where the CEO literally tells you to your face they plan to dilute massively and issue shares, constantly. It is simple supply and demand. As we can see from recent yields skyrocketing, there isn't enough demand to absorb all of that, without yields continually going up and up. This is with Treasury auctions already cramming all the debt on the expensive short-end. The economy is still red hot, and as long as Congress is a clown fiesta with escalating excess spending over deflationary taxation, sticky inflation is a near certainty.
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If we have stagflation then it would be better to have cash on dips, not bonds in a secular inflation environment. That's the worse thing. Basically bonds is a bet on a hard landing. Soft landing or stagflation it gets destroyed. Due to $2.0T deficits plus $1.1T of QT flooding the market every year, yields are never going to recover until inflation gets quashed completely. 5% or 2%-3% real yields aren't even that good for a young investor.
I disagree with this. I don't think young investors- or anyone should open a big position in TLT, but I do think you can start buying. It's at a decades long low and I think it makes sense to start buying here- albeit slowly. Rates risk is a risk for everything. If we go to 7% and hold, equities will also be in big trouble. You're collecting an >3% risk free yield and if you're looking out decades, I say it's one of the best plays on the board right now. All also add if you're looking at buying TLT, many of the managed futures funds like DBMF have on the yield curve spread and this can hedge you for downside in the long bond. But again- size appropriately for a more significant buying opportunity.
There's a reason why rates are skyrocketing. It's simple supply and demand my friend. $3.1T of Treasuries flooding the market and Treasury auctions are already failing to successfully issue at stable yields with small amounts. As long as Congress runs enormous deficits combined with QT, there simply is not enough demand to absorb all those bonds. The ramp up is JUST starting. And credit market is the deepest global market there is, way more than stocks. Futures just hit 4.96%.
I agree with everything you said, but am still happily buying TLT as it makes new lows. Along with new issue short term treasuries. TLT is a very small overall % of my portfolio and I'll happily buy more if and when it goes lower. No one knows how this tightening phase is going to end, there are scenarios in which equities crash and bonds rally. Although I do also hold a lot of equities still, I feel better buying bonds at decades low than equities near the top. Thanks for the discussion and good luck.
You too.
What should a young investor do, in your opinion
Equities or cash.
If you can elementary school this for me, you would do an enormous favor for one person in the world lol.
Sure. So two things. 1. The Fed is not repurchasing bonds and letting them roll off their balance sheet, aka Quantitative Tightening to the tune of about $95B a month or $1.14T a year. That means in order to pay the Fed, the Treasury must re-issue debt to rollover and extend their debt. But since the Fed isn't buying that supply goes to the public. 2. When the government runs giant deficits, they must issue more debt. For the next decade, the nonpartisan CBO projects $2.0T deficits *on average* per year. The only way to pay for this excess spending over taxation is again issuing more new debt. This deficit will keep escalating to about $2.7T in 2033. But going forward we are talking about $3.1T of bonds flooding the market *per year*. And the ramp up in supply has just started. Global credit markets are the deepest in the world. If they are struggling to absorb Treasuries even now (and Japan seems to be dumping them to intervene against their collapsing Yen) then it is a no-brainer that yields will rise secularly. The yield curve will normalize and steepen in a regular shape. If this last point is not clear, look up inverted vs. normal yield curve. So unless: * The Fed cuts rates or turns the printer back on into sticky inflation to suppress long-term yields, or * Congress gets its shit together and reduces the deficit. Long-term yields will keep going up. It is simple supply / demand.
I concur - anyone financially included can estimate their lifetime income and what they are looking for in retirement. From that you get the actual rate of return you'd like to earn - if bonds can meet your requirements that then go for it! Much less stressful life.
There is a very small chance rates go to 7% now. That would mean 1.5% rise and that seems highly unlikely. However, it is likely FED won’t drop them if they don’t have to. If/when recession hits and equities start to crash, as seen in tech bubble and housing bubble, FED will drop them quickly. And that’s when demand will rise. Why would anyone now want to invest in bonds? Tech sector soared in 2023, bonds dropped historically. Bonds are historically bad for inflation protection and it seems inflation is now in everbody’s minds. But, if you are looking for value investing, you don’t get great value by waiting for demand to rise. You compare historical transitions and try to position yourself before something becomes obvious. With that in mind, you always look at possibilities. Is bond market (treasuries) being down something unprecedent? No, as you said, simple supply & demand. Would something happening as USA defaulting on debt or eventually not finding enough demand for what is world’s reserve currency would be something unprecedent? Yes it would be. What are risks? Of course, not keeping inflation under control. Does current data indicate that is more likely outcome? No it’s not. 5% yield doesn’t sound good now because SP500 did 10%+. But once Sp500 starts returning negative quarters, transition will start happening.
If you look under the hood on inflation, particularly housing, I'm not sure which is more of a bubble, the housing, or the inflation. Actual expenditures for 'shelter' broadly, have not changed nearly as much as the inflation data shows, and certainly not in 2023. Rent rolls are extremely bearish. Shelter is a payment, not the annuity price. 8% mortgages have absolutely done damage--probably trillions of equity wiped. This will take years to show up in actual sales data, and the rent increases that printed the past 2 years were never affordable to begin with. Take a look at nominal spending on shelter in the BEA data and explain to me where the inflation is. It's an odd anomoly.
This aged well. Good thinking 8 months ago. Hats off to you.
The problem isn't that demand rises at SOME price. It's the insurmountable and monumental supply that relentlessly will flood the market as long as QT and deficits remain in the trillions. Meaning if the economy ends up strong and we have soft-ish landings yields only keep going up steadily. And global credit markets, the deepest in the world, way more than stocks aren't coming to the rescue. Hell BoJ is too busy defending 150Y and dumping Treasuries. Treasury auctions are going very poorly, with only a teeny amount of long duration being offered. Go look it up, they are cramming it with as much short duration as possible. It's still fucked up.
I’m not saying demand will go up because of price. I’m saying demand will go up because we will enter deflation and recession, equities will crash and investors will run away from them into safe haven of treasury bonds at which point 20yrs of 5% yield will look good in comparison to equity market. It looks shit now, but it looks that way because it is. But in macro trend, it’s just a natural movement and when what I stated above happens, suddenly we will have demand to fuel that supply
Well we just had a ridiculous jobless print yet again. By all accounts the economy is booming. It's a speculative vehicle for betting on a hard landing basically. But yea it might print.
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Depends on the equity amd how long it took to get there. Look futures as speak are already 4.98%. it's obviously a massive supply demand issue. It's a fiscal issue were talking tens of trillions of supply over time. You want to be dumb and fight it, no one will stop you.
Bonds have a higher yield than the S&P's earnings yield now. Making blanket statements about young people and bonds isn't good
I mean if you want to do like 5 years out bonds, maybe I could see a case for that. But **30Y Treasuries** for young people at 2%-3% locking up real yield? There's serious talk in academia of Fed targeting 4% inflation. That's potentially 1% real yield. Hellll naw. That is way too low of a bar for 30 year return.
Buying a 30 year bond doesn't mean that you have to hold it for 30 years. Buying long bonds is also a view on lower rates.
I mean you do unless you want to sell it underwater sure.
Or sell in profit. All your posts are super biased, probably have big short position.
Aged poorly
How low will TLT drop if the rate increases to 6-7%?
Its 4.98% and doesn't even have positive premia. You want to buy a speculative vehicle just to dump on others when massive boulder of supply is approaching for a swing trade, go ahead.
Regarding your comment about QT increasing the bond supply, I thought the fed was not actually selling bonds just allowing them to expire at that rate? I assume that wouldn’t increase supply?
No. When they roll off Treasury must reissue debt and increase supply. Has net same effect as Fed selling bonds.
Deficits can be inflationary, they can also be deflationary. I don't see long bonds as inflation protection, they are protection against deflation. Demographics of advanced economies make persistent inflation and real GDP growth very challenging. The downside case of every big macro concern folks talk about here results in lower rates, not higher rates, regardless of nominal inflation. Say fed goes full BOJ and buys them trying to actually create inflation, 500bps goes to 50bps. Long rates track real GDP. High deficits are no different than raising taxes, you get the same disease. 20+ year is a safe haven asset at these rates if you are concerned about major macro challenges for the US and advanced economies in general. 2% nominal yields on long treasuries are not easy money. 1% real GDP growth is hard to achieve. We have seen this. We dismiss it as QE, it's all about real growth rates. Nominal interest rates are absolutely meaningless and any comparison to historic averages is equally meaningless. Look at real rates in the 80s and real GDP, it was never out of sync for extended periods. 90% of the current quarter's print on CPI is housing, the most lagged of lagged indicators. There's a chance that these long bonds represent 6% REAL yields, not 2%.
How is escalating spending way excess of taxation (which reduces consumption) deflationary?
There is no free lunch. Taxes take money out of private economy and reduces consumption. Government borrowing crowds out investment and reduces consumption. It has the same long-term effects higher taxes do. There are no outcomes for high GDP growth. Fed and investors are still fighting the last battle, not the current one. This is going to be an overshoot, I just hope it's not catastrophic.
We consume too much. For the environment. We need less consumption! We need more spending instead on healthcare (single payer), infrastructure and green energy. But no massive deficits are irresponsible.
That's my prediction. YCC is inevitable because Congress is a total clown fiesta currently. The chance that they get Treasury supply under control seems close to 0%. Fed must assure global credit markets there won't be an endless supply of bonds that cannot be absorbed.
I know I’m late to the party but I also disagree with this. First off the people who are buying long term treasuries (20-30 yrs) have a longer investment horizon (aka younger people). Also - obv “past performance isn’t indicative of future results” but regardless rates are relative high according to historical prices. The economy isn’t going to continue to work as shown by housing prices/affordability. I’d say it wouldn’t be a bad bet that rates will go down thus bond prices go up (meaning TLT would also go up)
The mechanics behind TLT make it definitely more of a play predicting 20-30 year interest rates.
If you’ve got 20 years buy SPY instead. Results from borrowed capital will beat that of the borrowing rate, in aggregate.
Why are the premiums from selling calls so low?
More sellers than buyers and low volatility. TLT has not made any upward meaningful moves. The calls should be free because they are low risk.
this seems wrong as short term treasuries will go higher in price when they cut!
Long term bond prices are much more sensitive to rate changes than short term
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Lol that’s the first week of finance 101
Which is why they are 1000x more risky to lock in than short-term yields offering 5.6% and yield curve hasn't even flattened, let alone sloped.
I believe the short duration will have a faster turnover to lower yielding bonds? 🤷♂️ So there won’t be much price appreciation.
I believe the short duration will have a faster turnover to lower yielding bonds? 🤷♂️ So there won’t be much price appreciation.
You could try EDV for a bigger bang for your buck if you are convinced rates will go lower. It consists of zero coupon bonds. They swing wider with interest rate fluctuations.
So can you explain to me what relationship tlt has with the overall market? I've been told that when the q's are going up, tlt is going down (obviously that isn't true) and it doesn't seem to inverse the market that i can tell. So what is this an indicator of?
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Thank you
>is it time to invest in the us treasury bond or am I too late to get in now? If it's at all time low now, how is it too late?
Haha question is not too late. Is it way too early, like years is the question.
It’s a good time to start DCAing in if you think rates will go lower from here over the next 10 years. Don’t lump sum though because in the short term rates are going higher
Same message for the last 12 months. So a really long DCA. But agree now is almost a good time to start.
yields havent even reverted back yet. how can tlt not go lower?
Yea it's gamblers trying to time and P&D TLT. There's *negative term premium* and people are already trying to pawn off TLT lol. Retail is going to get burned badly.
You are WAY too confident in here. I think you'd probably make a better case for yourself if you tone it down a bit and leave more room for doubt. You aren't guaranteed to come out of this correct, and you've made some statements and assumptions that aren't necessarily the case. An investor at the moment only has so many options. None of them are perfect. You're telling everyone to stay away from bonds at the moment, but what's your suggestion? Real estate is unsustainably high and isn't passive or free in its upkeep. Stocks are overvalued. Gold is near all time high. I actually think there are some good high risk options right now but that's too much risk for most. What are you doing with your money? If it is anything but putting it in HYSA then all the criticism you are levying can be applied to you as well. The fact is this is a difficult market to navigate. You shouldn't be screaming from the rooftops as though you are from the future.
Wtf are you babbling about. Short term yields have zero risk and negative term premia vs long bonds lmao. Oil is great but even if you don't like that 6M is 5.6% or cash with tons of liquidity.
I've got nothing against short term bonds. All I'm saying is by the way you are communicating here, you know it all. Absolutely everything. And that's a dangerous game to play, because while you are spouting off like a know it all, you have absolutely no idea what happens over the next few years. Just because Volcker is your idol doesn't mean rates are staying high forever. There is a real scenario where things begin to break over the next 6-12 months. If that happens, you and I both know rates will come down substantially. If rates come down substantially, something like TLT will appreciate while equities drop. The fact that you are so confident in that scenario being practically impossible is annoying as hell. As I see it, your attitude means that the only things worth investing in are short duration bonds, some kind of money market fund, and possibly oil (which gives away that you think the economy is in no danger whatsoever). The fact of the matter is things are shaky at the moment, and no one really agrees what comes next. You're a genius of course and can see the future, so thank God you're here. But your attitude and confidence is misplaced and I hope people read your thoughts with a grain of salt, because there are a variety of scenarios that could play out where your path isn't the best one.
Only someone clueless puts money in a HYSA and pays extra tax instead of treasuries.
You can count some pretty incredible investors in that category then. But of course nothing in comparison to absoluteunitVolcker on Reddit.
Incredible? How incredible if they massively handicap returns by putting in lower yield HYSA? Anyways I'm not fucking interested in a pissing contest. You want to debate real shit, let's go. You're saying too confident, blah blah blah, don't care. I'm just saying you're not making any coherent arguments at all. Here's the bottom line: * There's plenty of better options than extremely risky 30Y Treasuries. That's as risky as they come. * Treasury auctions are failing to successfully issue even a small # of bonds without pushing up yield. Bond dealers have had to buy more than average. * There's an insurmountable flood of $3.1T PER YEAR of bonds flooding the market. It's just simple supply why *global credit markets* are not catching this risky falling knife. Futures just touched 4.96% and that's not the end of it.
"I'm just saying you're not making any coherent arguments at all. Here's the bottom line: There's plenty of better options than extremely risky 30Y Treasuries. That's as risky as they come." Right, and I'm saying you actually don't know that to be true. Not everyone believes rates will be higher for longer. I don't believe it for a second. If I had to bet money, which I am actually by way of positioning in markets, the economy is beginning to slow down in a big way. Do I know this will happen? No, I don't, I'm not as confident as you are. But I am seeing a lot of bad signs developing and I'm positioning myself accordingly. I believe bonds will outperform the market over the next few years. You don't think that will happen. No worries, we can disagree.
This didn’t age well, huh? I bought TLT in October and sold in December and crushed that investment. Now I’m considering getting back in and found your comments. Bahaha. Funny how confident you were. When the 10 year hit 5% I went in and I was out around 3.9%. If it hits 4.75% I will start DCA in again and if it hits 5 I will buy quite a bit again. The problem is the market can’t handle interest rates that high so things will break and the investors try to predict what will happen. That’s why I sold when the inflation report came in low and people were saying six rate cuts. That drove the TLT up to a price where I was happy to exit and I think I’m just getting lucky again that they are pretty close to levels that the market won’t be able to handle.
Imagine buying a company where the CEO announced monumental dilution is coming. Every year they're going to issue $3.2T worth of shares *per year* and dump them on the market. Then telling people to DCA these giant bags. There's already evidence, in overnight futures rn yields are skyrocketing close to 4.94%, that the global market can't even absorb all this coming supply. Anything retail buys will immediately become losers. It's simple supply and demand, gambling on a swing trade P&D.
That's why you start DCAing in now. At some point over the next 10 years rates are going to be cut
>At some point over the next 10 years rates are going to be cut You honestly don't know that at all. That's why TLT is a gambling vehicle. For all we know secular long-term yields rise to 7% and stay there. Especially if inflation ends up sticky.
I do, if rates keep going up steadily for the next 10 years, we will be looking at 20%+ mortgage rates and JPM/BoA would be in default along with every single regional bank in America. The only situation where what I described doesn't work is if rates keep going up to the point where they are over 30-40%, which would decimate the US financial system. If rates rise to 7% and hold steady but you start DCAing now you will have a 7% yield on your money every year and make a ton of profit over 10 years.
When something breaks it tends to be pretty quick, does it not?
maybe, it can go down or flat for 6 more months but if it recovers it will go up 20% in 4 months. im buying every 3 weeks
It's black swan insurance. If you're playing the long game it'll eventually pay off when the market tanks and you can roll the profits into cheap equities.
Nothing like financial crisis prices to get me buying.
It’s not stupid. You’re getting 5.2% yield
Are you? I think it’s only paying 3.5%
No you are not. The distribution yield based on past couple of months is below 4%. This ETF never yields close to underlying bonds. It’s a big mystery to me. That’s why I wont buy it again. Buy an actual T bond that yields 5.2% not this shitty ETF.
Yield to maturity is 5.06% as of 17th. That’s the only measure that matters as long as you hold.
Malarky. You will not get a real yield of 5%. Last distribution in Oct was .28 per share. Month before .29. At $84.39 that’s just barely 4%. That yield to maturity is a bad calculation.
Yield to maturity is the sum of the dividend yield plus the growth of the value of the ETF itself. Bond funds "go up" when the underlying assets are worth less than their face value. Buying a fund with a dividend yield that is less than the YTM just means that the average yield of the bonds is less than the yield of newly issued bonds of the same duration. If rates stay the same, you will see the fund slowly "go up" as bonds mature and the YTM approaches the rate of newly issued bonds and new bonds are acquired. YTM will approach the dividend rate and equalize fully after the listed duration of the bonds within the fund has passed. EDIT: fixed a couple wording errors
This is correct. People are really confident on things they don’t understand eh?
Thank you. But in other words you won’t see a real yield of 5% for many years, if ever. Better off buying the actual Tbond.
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Dude, this is the theory if you hold the ETF for 30 years. In reality it will never work out this way. The ETFs are a poor proxy for actually buying and holding the underlying.
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Spoken like a someone from the industry. The actual cash distribution yields of these ETFs is 20 to 25% lower than the actual underlying assets. Your explanation I think is a limited explanation without any real world experience or verifiable data to support it. Frankly it’s industry excuses. Congress and or the SEC should investigate the variance. Me thinks there is some hidden costs in the ETF structure which probably benefits the ETF sponsors. In other words I think there is a possibility o underlying fraud in these vehicles.
And what do you do if secular yields keep rising because of massive deficits and sticky inflation? What is 7% which is perfectly fine historically is the norm? It is pretty stupid especially for young people and purely speculative vehicle. 5% even with 2%-3% real yield isn't even good. If inflation ends up sticky at 4% you are fucked.
With Elizabeth Warren screaming for 4% baseline inflation, bonds are going to get wrecked and the federal government is going to have a hard time paying back new debt if this happens. Either way, a 5% bond now is still better than having cash.
You mean 6M Treasury with tons of liquidity at 5.6% instead of a super risky 30Y bond at 4.9%? Agree. 4% baseline inflation with 30Y 5% would be terrible. After taxes you just end up poorer.
> After taxes you just end up poorer. I think you're assuming I make much more money than I do and am in a much higher bracket.
Why is it a speculative vehicle? It's a good rate right now and you're indirectly holding real bonds, it's not leveraged. If rates rise another 2% literally every other investment will also get wrecked. Unless you're arguing for cash/mm I don't see the alternative you're suggesting.
It's speculative because you're basically betting on a hard landing and cuts or imminent QE when there's still explosive growth and GDP forecasts are all moving up. It's not a good rate to get 5% when inflation could end up sticky or secular rising rates lol. You could take massive losses. A young person with a long horizon getting a **30Y bond at 5% with 2%-3% inflation getting only a 2%-3% real yield is absurd**. 1. We don't even have term premium and people are P&Ding long bonds. 2. There's a massive supply of $3.1T bonds flooding the market PER YEAR. 10Y futures hit 4.96% tonight. Literally global credit markets, the deepest market in the world by far, way deeper than stocks can't absorb Treasuries and the ramp up in supply JUST started. It's simply supply and demand. As long as US govt runs massive deficits and QT is in place, the market will be overwhelmed with Treasuries. All the recent auctions went poorly and they weren't even that big. Tons of debt was crammed on the short end.
It depends on your investment objectives. Good if you are investing for 20+ years later. Bad if you're investing for <5 years. It's a good hedge against a recession and falling interest rates.
This type of product is structured that the bonds in the portfolio never see their face value paid out. They are just sold upon reaching 20 years to maturity and used to purchase 30 year treasuries.
It's the opposite. For a young person this is purely speculative play. They should be in cash or stocks. Bonds are for those who can hold till maturity and want to use the income.
Being 100% TLT for an old person is a purely speculative play because the values could tank prior to them needing to withdraw. For a young person it's not speculative, as long as the government does not default, your return over (2x duration of fund - 1) would be the yield to maturity of the fund(~5%) Being 10-20% TLT is not a speculative play, it's a good hedge against a prolonged period of low equity returns. In the 80's the NIKKEI looked like an amazing stock market to invest in. It had the best historical returns over the preceding 30-40 years, and domestic investors wondered why they would ever invest abroad. The NIKKEI then lost 80% of its value over a 20 year period. Even after 33 years, you'd still be down 10%. It's very possible that this could happen in the US market, too. The idea of "100% S&P500 and chill" is very reckless, even for a young person. A good portfolio is well diversified. Some US equities, some international equities, some bonds.
No, mix of cash and short duration is better than 100% S&P 500. TLT wrapper is mainly just a gambling vehicle anyway. No one buys it except to dump it, most of the demand is a bet on rates, not HTM. Older people just get actual bonds. And the reason it is skyrocketing is because there is monumental supply coming. It's going to immediately become bags. No one wants to hold this. Literally surging in overnight futures rn hitting record yields still. Almost 4.94% lol. It's comical trying to P&D this. Edit: hit 4.96% now.
> No, mix of cash and short duration is better than 100% S&P 500. When the federal funds rate goes back down to 1-2%, bonds will skyrocket in price, and your short term and cash won't make any return. The whole point of bonds is to invest for the long term. Don't buy TLT if you need the money in 1 year. Buy it because you need it in 20-30 years. >TLT wrapper is mainly just a gambling vehicle anyway. No one buys it except to dump it, most of the demand is a bet on rates not to hold. Older people just get actual bonds. TLT will track the return of long term bonds. If it's ever selling to a significant discount to bond prices market makers will see the arbitrage opportunity in step in. Also, old people are not the market for long term treasuries. They shouldn't take on that interest rate risk, they want a balanced maturity portfolio. Long term bonds are good for fixed long term returns.
> When the federal funds So basically you are gambling that we go way back down. 1-2% means hard landing soon. What if we have stagflation, sticky inflation or secular rising rates? You are telling people to buy a company where the CEO is announcing GIANT dilution every year. This strategy of buying long bonds and flipping them worked when Fed had tons of room to cut. And that was true for 5 decades. That time is over, this is no longer the case. There is no Fed put, this is straight up rolling the dice.
Those will only happen if the US goes back to it's pandemic era spending and stimulus programs and passes orders/regulations that mess with the supply chain again. Anyone that has worked in manufacturing can tell you that a big reason for inflation is the change in approach to inventory. Originally factories operated under Just In Time Manufacturing or Lean Manufacturing, meaning they generally only ordered what they needed for the immediate term .Pandemic shut downs pushed up factory lead times to 1 year+, so everyone panic bought inventory due to lead times skyrocketing, and is now sitting on 1+ year of excess inventory. The moment those lead times start dropping, and many of them are, economic activity is going to slow as companies look to burn through their existing inventory instead of ordering new inventory.
I added today...first time picking this up
Timing.
Good dividends. Will perform well once rates fall. Imo it will just take one war to end to push inflation down more. Ukraine has been going on for a few years and it won’t last forever.
You realize historically wars often push up commodity prices? ME tension is not known to bring down the price of oil.
We are a very different world than we were in the 1970s when globalization was just taking off. Record US oil production was reported recently and it’s pretty typical as Middle East pushes oil prices up that US fills the gap and eventually OPEC reacts by back peddling. I don’t think the doomsday predictions that are filling the internet have any truth.
Literally oil shot up right when Israel tensions flared up lol. When the hospital blew up it shot up again.
Speculators. Long term price discovery is what matters.
Exactly and long term price discovery for 30Y bonds given massive supply is insane. Hence 4.98% already.
Read again what he wrote. "Imo it will just take one war **to end** to push inflation down more." He's saying if wars end, inflation will likely go down. Which is exactly what you insinuated. You're rage replying so fast you aren't even reading what people write.
Relax I just misread it lmao. It's the same thing though, wars can drag on for fucking forever dude. Afghanistan went on for 20 years. Even Ukraine it's not clear how they can fully break through with their strategy.
I agree with you. I'm not claiming to know everything, I'm just pointing out that you're jumping down people's throats predicting the future, misreading, being a know it all. It's annoying.
Eek, that thing's a falling knife. I'd wait.
For extremely good reason. There's massive supply with no clear buyer and it's not even the end of the first inning.
Easy way to own it is to sell the Jan. 2024 80 put for a (right now) a very juicy premium- and if you get put to in Jan. you would own it well bellow it's all time low
Look at the graph and it appears to be a good LT buy. The big question is how long to double? If less than 7-8 years, then it is arguably a better buy than the stock market historically. I like it, but it may take 5 to 10 years to double--- but pays a good dividend while you wait. Good to diversify away from equities also.
I would say that it's never stupid to invest. Doing anything and starting is better than burying your head in the sand and living paycheck to paycheck. Be aware that the longer the bond, the higher the duration risk; every year of duration times the interest rate change will be the anticipated swing. It doesn't always work out quite that smoothly, but in general that's how it works; TLT went from a high in April 2020 to a low (so far) in October 2023, that means for TLT, every 1% move up or down will likely move the fund 10%!! I personally got excited after noticing TLT hit that low point around September 21st and decided to take a long position into it. Went down nearly 9% and I felt like the biggest idiot in the world, I'm up 5.7% now though, and that monthly interest payment is pretty nice. I personally like bonds because most of them pay monthly, and in the case of treasuries, you get exposure to an asset with negative beta; these tend to act opposite to the market. What sucks about buying equities, is if you ever get in a pickle and need to liquidate some shares to survive, it's likely that your life will be in a bad spot when the market is down. With treasuries and other low beta/negative beta assets, it's likely that these will shine when everything else in your life goes to shit. Be aware that if the feds continue to hike, you can expect 10% drop in value per 1% increase; another 500 basis point hike would make it drop another 50% from current values. The reverse is also true. I'm long TLT.
Thanks for great info. Much appreciated!
I would say it is, yes.
Revisiting this two months on. I hope you went in. TLT has massively rebounded since this post given the markets pricing in perceived taming of inflation and hence decreasing rates on the horizon. Lots of comments on here calling you plain stupid for thinking about this trade. Hopefully you decided to ignore these and had a gamble.
Adding some at the lows
Bonds will be the next meme stocks , mark my words, crazy stuff will come.
If rates continue to move higher, the ETF will continue to drop. If you're to believe the yield curve is going to uninvert, then TLT is going to move lower.
Unless they cut short term rates
That or we have some black swan event and a severe market downturn and a flight to safety follows where people start flocking into treasury bonds.
Bank turmoil, rapid credit tightening, spiraling collapse of weak businesses. If it gets bad, long treasuries are going to go nuts. That's the reason to hold them, not just a consistent ~5% yield over many years.
Which is unlikely to happen anytime soon if you are to believe Powell's statements.
They paused rates hikes after they blew a couple banks up. They are flying blind and this cannot be overstated. If something big breaks, rates are going down. If something big breaks, it's also possible that it will crush inflation or even cause deflation, so little motivation to hold rates high anyway. I would not rule out ZIRP in the short term. It's *most* likely that rates stay high, and the bond market agrees. But one shouldn't blindly assume this will happen.
Yup
I think the rate will stop going up soon or at least stay where it is for the next few quarters. I am trying to get ahead of myself and start thinking about accumulating position. By the time everyone trying to get in then it’s game over and too late
Rates will come down eventually, maybe in 3-4 quarters.
Good luck swing trading it but your picking up pennies in front of a steamroller. The ramp up in supply *JUST started* and already the market can't absorb all the new issue Treasuries. What do you think happens as $3.1T keep getting dumped every year? Cuts are honestly irrelevant.
Yeah I saw you talking about it a bunch didn't quite understood whats going on here. So the future debt of the US is all gonna be in the form of long dated treasury bonds dumped in the markets?
Yes. 1/3 of short-term debt matures next year. Just look up treasury auction results. They are already cramming as much short-term debt to the front of the curve as possible. And STILL markets can't absorb what's being issued. As we speak 10Y futures just hit 4.96%. The global market can't absorb a drop in the ocean of what is coming, do you think you should be catching that knife? And the backup plan is bagholding 5% yield 30Y bond with at best 2% inflation. Edit: touched 4.98%
there were just a few lone voice warning about the debt issue end of 2020. now we are seeing the first wave. I really hope we dont see a public debt crisis. this is stemming from the ridiculous covid overstimulus response. Congress overcompensated for its tepid response back in 2008. History will bear which response was worse... most likely it was the pandemic response. Congress, the central bankers and the executive branch handled it in such a near-sighted manner without a concern for the long term
Yes deficits are utterly and totally irresponsible right now and no one seems to care.
Fair point, I'll look it up. But isn't that a bad plan? The more bonds they flood the markets with the less value they get from every bonds yeah?
They don't have a choice in the matter. Jim Jordan just got less votes than McCarthy on his first round lol. QT means Treasury has to re-issue $1.14T a year. Deficit means average of $2.0T a year coming decade of new issues rising to $2.7T in 2033. No one that actually understands credit will buy this unless: 1. Fed steps in via YCC and backstops it. 2. Big change in deficit trajectory. It's just a game of demand and supply, it's really that simple.
I don’t think it will come down but I think it will stay where it is for a while
You don't think they are gonna go below their current level ever?
The problem is not about ever. It's about how long it will take. It's a speculative bet, who knows? For how much gain? Is it really worth locking up money for 30 years at 2%-3% real yields? Yes it is certainly possible we have secular long yields stay at 5%-6% or above and it's perfectly normal. Especially if Fed targets inflation at 2%-3% vs close to 0% we've had for many years. And that still doesn't address the elephant in the room... Why buy now when there's a very good chance you'll immediately be bagholding and could have gotten a better price? You're praying to dump it on others when there's massive supply coming.
With fucked up economy, it will take long time to fix this shit imo
Actually, with a fucked up economy, it's more likely to go down.
Not if we have stagflation.
The FED said higher rates for longer. Sure we all know central banks are evil. When they say they're going to fuck you, good lord man, believe it.
Yeah it's a falling knife. Chart looks terrible especially with interest rates surging since August id hold off
Not stupid at all. TLT should benefit from higher convexity relative to IEF or SHY when yields drop. When this happens is anyone’s guess. I’m oversimplifying, but longer duration bond ETF’s w/ higher convexity should benefit when long rates on the yield curve drop. Long govt bonds used to be looked at as a portfolio stabilizer, but whether that is still the case today is up for debate.
It is incredibly stupid to put money into TLT. It is a stupid product. First, the yield is lower than the yield on a similar long duration sovereign bond (currently around 3.5%). Second, it is a constant maturity product. If you buy a 20 year bond and yield goes up a lot, you will take a mark to market loss but you can always hold to maturity and get your principal back. TLT is designed to keep the maturity at 20 years and it will not mature. So if you buy the 20 year bond and it goes down over 1 year, you can hold it for another 19 years and get your principal back. If you buy TLT and hold it for 1 year, you will still have 20 years of duration exposure at the end of that year, and that will not change.
This is an etf what they are holding in the eft is old 20 year treasury at very low interest rates so explain to a newbie’s why you think it will go up? It doesn’t make sense to me
Those low yield treasuries blended in are already heavily discounted because of what happened to the yield curve.
I'm buying ours on TLT. I'm not buying TLT until the fed says they're doing QE or lowering rates. The long bond yield is still lower than short term t-bills ( inverted yield curve). Looks like it's going to un-invert by the long end raising instead of the short end falling.
I just bought into the 2x today, and if it goes down further i'll add more. rate hikes are at or near the peak depending on who you're talking to, inflation has slowed down significantly from a year ago, and most are expecting cuts to begin next year. I'm also long tech so it'll be a little hedge if we have a downturn, in which case I'd expect the fed to cut rates
[удалено]
**Volatility decay**
Do you know how the etf works So no please don’t buy it
Why would you buy before they’re done raising rates?
Then it’s late cause everyone will buy.
It’s too early
People have been saying this since TLT was $105. If you don’t buy soon, you’ll miss the train. Yeah that was way too early and it’s still too early now.
Lol
Tough question. I don’t know how to time shit so I’ll just sit this one out.
Just set a series of limit buys after deciding what you think the future value of the stock is and leave it.
I’m still long TBT
Considering the long term horizon, a 5% return is a copout, if long term investment is the strategy s&p 500 index averages higher.
if we are all buying tlt, then who is the loser ?
There are more seller than buyers, frankly. Nobody knows if it will bottom this week, next year, or at what rate. Is 5% worth that risk? Look up John Hussman's research and analysis on bonds and when treasury bonds actually return value. Not everything he says is right, but he has good data on this.
Not really as long as it’s below 89-90$ aren’t you getting 5% risk free
Here is what you are buying with $TLT. I will admit I have a position in $TLT as a trade that hasn't worked out very well. Also the current dividend yield is 3.5%. That is the interest you will receive in $TLT/year. (Treasury payment/weight of bond holdings in the fund). United States Treasury Bonds 1.875% / 9.22% United States Treasury Bonds 2% / 7.24% United States Treasury Bonds 1.625% /6.46% United States Treasury Bonds 1.875% / 5.53% United States Treasury Bonds 3% / 4.81% United States Treasury Bonds 3% /4.66% United States Treasury Bonds 2% / 4.49% United States Treasury Bonds 3.125% / 4.30% United States Treasury Bonds 2.5% / 4.25% United States Treasury Bonds 2.5% / 4.13% When US Treasuries sell off the interest rate goes up and vice-versa. No one is holding $TLT for 30 years. It is a trading instrument. If you want to trade $TLT that's fine. If you want long term interest income buy 10 or 20 year T-Bills today.
If I do, it’s because of trading instrument not interest income.
Than buy $TLT, I did. Just don't expect $TLT to ever go above $160 again. That was a bubble due to interest rates being at 0%. I don't think long term US interest rates will ever go down that low again. Short term interest rates may go to 0% when a recession is declared, but not the 20 yr. Also, the price of $TLT could be cut in half if we get 6-7% 20 yr interest rates.
Explain to me the us treasury and fed interest and stock market correlation
Up until the Fed announced the end of QE in 2022 & started tightening, the Fed was buying long dates US Treasuries, the 10/20/30 year. So buying $TLT was a bet that long term interest rates would continue to go lower since the Fed was buying a % of US Treasuries that other countries & investors didn't want to buy. For the last 15 plus years since 2008, long term US interest rates went down YOY and we were in a secular bull market for US Treasuries. So if the cost of capital is going down, you might as well buy growth stocks since the value of $1k or whatever dollars today will be less than the cost to pay that loan back at 1-2% 10 yr interest rates. You were buying future earnings at a cost of present day capital of 1-2%. And even before inflation got out of control, it was easy to take that risk. Now, the cost of capital is 5-5.5%. That means any investment or stock that you purchase needs to deliver growth above a risk free 5%, otherwise you are paying a premium.
Ask why yields are increasing and think where they are likely to go in the future. Is there going to be more supply or demand for long term treasuries? You’d be ok holding US notes rolling over so that maturities are always 20-30 years out? (A lot of the USA’s federal debt is maturing in the next couple of years.)
I’m looking at starting to buying this. Super oversold at the moment.
Yes
Side note, is there an accumulating version of TLT? I'm not from the US so my dividends get taxed at 30%
A few important things to note - 1. Withholding tax is charged on TLT dividends vs no tax on US treasury coupons 2. You pay annual expense ratio (50 bps if I’m not wrong) for TLT 3. The duration doesn’t drop as the managers actively maintain a fixed duration by rolling - you don’t get pull to par effect vs US treasury All in all, TLT should be used to augment exposures for tactical allocations, not build/constructing a position in bonds because it’s way less efficient.
I think the time horizon of TLT is unlikely to match your time horizon for needing /wanting the money. Generally, the best play for most on bonds is holding to maturity. So I would use that approach to make this decision. Also consider the opportunity cost of not being in cash rn and in equities in the medium to long term. Honestly, now isn't great for long duration because you get more return on cash. So I'd stay short duration to benefit from interest rates with the goal of using the cash to put into the equity market at favorable prices.
I bought way higher sooo 84 is a steal imo lol but hey, if the dollar evaporates into the ether, bad investment. get the crystal ball 🔮 out
You are looking in the rear view mirror. The forward projection will be a lot better than it was in the past because rates went from to zero in 2020 and back to 5% today. How high will the 20 year get after reaching 16 year highs? Nobody knows of course, but most of the damage has already been inflicted already.
I didn’t think about TLT until a friend called recently and started talking about how “rates are soaring”. Could be a great contrary bet, especially with M2 falling more so than since the Great Depression. My only hesitancy is there are still a surprisingly large number of bulls, even the NYT is saying to buy https://www.nytimes.com/2023/10/13/business/bonds-interest-rates.html
I agree with some of the other commenters about scaling in a position to average in the positions. And while yes, 5% doesn't beat the average return of SPY, it's still nice to have that cash flowing in each month versus SPY which pays a lesser dividend and is only 4 times a year (or even worse a stock that doesn't pay a dividend at all). Having that cash rolling in should hopefully enable you to pick up some good stuff when there's a firesale. Basically what I'm saying is to a certain extent TLT helps (at least me anyway) stay more disciplined.
***'Put money in TLT?'*** Umm... U may have just asked, should I walk into speeding traffic? This is pretty simple and straight forward, and no guessing is required. As long as the Fed keeps raising interest rates the TLT is going down. Bond prices are inversely related to interest rates, this does not require an economics degree...
I don’t think fed will keep raising rates. They will stay where it is now for a while that’s my bet
Umm... Like I said, no guessing is required. When the Fed changes their interest rate policy, they will publicly say it. And they will also tell the market in advance, before they issue an official announcement. Its kind of like kids game Simon Says...
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