At What Yield on 10-year Treasury Note Will You Shift to Bonds? (annuities, bond)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I know it's certainly not the only criteria for a decision to buy more bonds. There is your own individual situation, the equity risk premium, inflation etc. Let's say inflation stays around 2% and inflation expectations for the next 10 years do so too. At what yield on the 10 year note would you shift more of your investments towards bonds? - Thanks.
i still am not following the op's question. is he talking shifting to long term treasuries or is he just confused that a 10 year note and a 10 year bond are the same thing?
I know it's certainly not the only criteria for a decision to buy more bonds. There is your own individual situation, the equity risk premium, inflation etc. Let's say inflation stays around 2% and inflation expectations for the next 10 years do so too. At what yield on the 10 year note would you shift more of your investments towards bonds? - Thanks.
if you are talking going longer out in term then my question would be why are you doing it?
as an example do you have a certain volatility level in mind for your portfolio? are these bonds going to be the bulk of your investments? are they going to be your only investment? are you going for capital appreciation if we have a black swan event?
why does it matter?
longer term treasuries are good to have no matter what the rate if they are going to fly fighter cover for other assets.
having more volatile longer term treasury bonds means to maintain the same volatility in a down turn i need to tie up less money in bonds and can have more in equities producing better returns in the up years .
if i used equities and cash or equities and the 10 year i would have to committ more of my stock budget to bonds to limit my volatility in my portfolio in the downturns . the longer term treasuries require less for a given volatility. the additional money allocated to equites would be further ahead most likely than the drop in bonds during the good years.
but if you are looking for just an investment in longer bonds then yes i agree about 4.50% -5.00% would be about right but you really need to look at the yield curve and see if it is worth the risk of going out longer.
while you always get your principal back losing 1/2 your purchasing power on the money you get repaid in 30 years is the same loss a bond fund would have seen.
a bond funds interest goes up with rates , a fixed bond does not . in either case you either end up with a drop in nav and higher interest payments as in the fund or you end up with a fixed rate that does not increase , the repayment value is fixed but you suffer a loss in purchasing power. getting repayed 1000 bucks in 30 years is only worth 500 bucks in todays dollars.
longer term bonds can be as volatile as stocks if you are not going to hold them. unlike stocks which pretty much cycle through the business cycle like night follows day, interest rates have no real cycle you can count on.
it took us 35 years to get this low. the ride back can take pretty long as well and there is no guarantee if you are at a loss due to rising rates that rates will ever cycle this low again in your lifetime.
in my opinion just buying long term treasuries without a specific strategy is a speculation more than any kind of investment.
i think long term treasuries and gold can go well together or long term treasuries, equiities ,gold and cash. but by themselves it is a risky speculation . risky in the sense you will need the money before maturity and risky in the sense that higher rates and higher inflation usually go hand in hand so loss of purchasing power is an issue.
Last edited by mathjak107; 09-14-2014 at 04:23 AM..
I agree with mathjak107 that an investor should consider bonds (fixed income), the entire curve, in the context of his overall situation, goals, risk tolerance, and strategy.
We are lucky to live in a country with such wide and deep financial markets, there is something for everyone and for almost any situation.
I interpreted the question as an increase in allocation to fixed income vs equities, not necessarily a shift up the fixed income maturity curve.
Either way, I also agree with both responders above so far that a "sweet spot" would be 4.5%-5.0% out to 30 years. I also assume that we are talking high quality, treasuries or at least A-rated municipal bonds, maybe investment grade corporate bonds.
Anyway, I don't hold my breath waiting for that to happen; I know some folks who have over the past five years or so, and they've turned blue and died by now.
One question, when should an equity investor move to bonds if their portfolio is comprised of dividend paying stocks that were purchased with a 3+% yield and has experienced growth in the stocks and the dividends?
If I read your article correctly, the value of the bond and the yield will balance itself out
over time but if this is the case where is the growth?
i still am not following the op's question. is he talking shifting to long term treasuries or is he just confused that a 10 year note and a 10 year bond are the same thing?
OK sorry I should have been more precise. The 10 year Treasury note is the usual benchmark for fixed income. So at what yield on this benchmark are you going to shift your investments to fixed income vs. stocks? - In the past several years there was no reason for me to buy AAA fixed income as there was no yield. However in the past I liked to buy l/t treasury notes. The last I bought in 2007.
One question, when should an equity investor move to bonds if their portfolio is comprised of dividend paying stocks ...
I believe that a diversified investor should be an "all-of-the-above" type: equities, bonds and loans, cash, commodities, annuities, etc., and diversified as much as practicable within each of those categories, all at the same time.
I think the OP talked about "shift", as in increase or decrease allocation. I hope you are not interchanging "shift" and "move".
I think shift means "taking some money off the table", putting some of your gains in equities into bonds as interest rates rise (if they do), not switching wholesale from one asset class to another, but shifting the balance among asset classes.
One does not invest, as in put on and stay put, in bonds for growth, but for stability of principle and income, to smooth out volatility, and to match assets and liabilities over time. Otherwise, buying and selling bonds before maturity is trading.
One question, when should an equity investor move to bonds if their portfolio is comprised of dividend paying stocks that were purchased with a 3+% yield and has experienced growth in the stocks and the dividends?
If I read your article correctly, the value of the bond and the yield will balance itself out
over time but if this is the case where is the growth?
That is a very good question and I'm in the same situation. My hope is that the divi growths stocks continue to grow divis at a rate of nominal GDP growth at least. At that rate they should compensate for higher yields in fixed income. However past experience is no guarantee and the chance of picking a stock that will actually do so for a long time is much lower than most people think. So when in doubt I trust in value and sell a divi growth stock. There is also a cyclical aspect about divi stocks. As IR rates that sector falls out of favor and tends to underperforms vs. financials, industrials and inflation stocks. Right now I like industrials for example.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
