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We've got a thread on the S&P, so what about the other key segment of the market, long term government bonds? They've collapsed, declining over 50% since covid, much much harsher than the S&P for a supposedly less risky asset. So where are we at now with them? The inverse correlation between stocks and long term bonds has vanished, they move in tandem - will they ever diverge again? It seems like the only path up is rate cuts, which would boost stocks as well.
The threat of the government debt loads is weighing much heavier than in the past, adding more existential threat to the "safe asset". Fear is quite high with government bonds, is this a buy the dip moment or are they truly a troubled class that should just be abandon until we stabilize into whatever the new rate environment is?
maybe never but with bonds it s irrelevant … you will always get your deal you bought at if you hold for the duration value or maturity ..
unless one is speculating in bonds and like any investment not held for the long term , one may not ever get a profit in the short term…
so there is no such thing as recover with bonds as bonds are about the interest rate .
all that happens is if rates fall you can sell your bond earlier and get the interest for the next couple of years up front but then you no longer have that higher rate of interest coming in and have to accept a lower rate with newer bonds
so if a 30 year bond pays 1% and rates fell to a a fraction of 1% then you can sell that bond with 30 years left for a 30% gain .
so you got the 1% up front based on 30 years but hypothetically you will get a fraction of 1% in a new bond for 30 years .
in effect it’s a wash…
tlt has a duration of 16 years .
based on the higher interest rates on it now that you get , it would take 16.5 years of payments to equal the deal you had when you bought so that would make up the drop in nav plus the interest you had when you bought
Last edited by mathjak107; 11-06-2023 at 11:07 AM..
We've got a thread on the S&P, so what about the other key segment of the market, long term government bonds? They've collapsed, declining over 50% since covid, much much harsher than the S&P for a supposedly less risky asset. So where are we at now with them? The inverse correlation between stocks and long term bonds has vanished, they move in tandem - will they ever diverge again? It seems like the only path up is rate cuts, which would boost stocks as well.
The threat of the government debt loads is weighing much heavier than in the past, adding more existential threat to the "safe asset". Fear is quite high with government bonds, is this a buy the dip moment or are they truly a troubled class that should just be abandon until we stabilize into whatever the new rate environment is?
On one hand I feel your pain because I bought TLT which holds 20 year Treasury bonds and lost 38% of the purchase (I still own it). On the other hand the reason TLT fund "collapsed" (your description) is because those bonds are now paying more money out than before (that makes the fund price go down).
Higher yields make many people happy, but in some cases those happy people aren't understanding that inflation took away most/all of that increase.
Right now short term Treasury bills are paying higher rates than long term Treasury bonds.
The yields are inverted.
I have read (FWIW) that when the yield curve gets back to normal (meaning short term pays less than long term) it will be the shorter term Treasury yields that go down.
Unemployment is way down and inflation has been up substantially.
I doubt that yield will go down until inflation is lower. But who knows what 2024 inflation will be.
No one has the answer you seek.
You never want to have all your assets in one kind of investment.
The price of TLT is determined largely by interest rates. In order to "recover" we'd need to see interest rates drop back to 2020 levels.
TLT is, roughly speaking, a constant duration instrument. Sure the duration will wiggle around a little bit, but this is different than holding a single treasury bond. In the case of an individual bond, its interest-rate sensitivity decreases over time, and the price slowly converges toward its maturity value. Neither of those statements is true for TLT.
Bottom line is that if you hold TLT your returns are more dependent on future interest rates, as comparted to holding an individual bond. Of course if you're only holding for 1-2 years the difference is moot, but over ten years the difference becomes significant. Which instrument to choose will depend on your objectives.
The threat of the government debt loads is weighing much heavier than in the past, adding more existential threat to the "safe asset". Fear is quite high with government bonds, is this a buy the dip moment or are they truly a troubled class that should just be abandon until we stabilize into whatever the new rate environment is?
Troubled in what sense? Just because the prices have dropped? Or because the day that Treasury holders do not get paid is not far away?
If the latter were to happen, the entire world economy is at risk. If you think that's a real possibility you should sell all of your financial assets. The proverbial allocation of guns, gold, and canned goods would be more appropriate.
No one knows, but my Merrill Edge account just issued a summary that indicated they expected the inversion to end soon as at least a "soft landing" recession is expected in 2024.
I take any forecast with a grain of salt but I am watching carefully.
No one knows, but my Merrill Edge account just issued a summary that indicated they expected the inversion to end soon as at least a "soft landing" recession is expected in 2024.
I take any forecast with a grain of salt but I am watching carefully.
Yeah, nobody knows. This past January I had a meeting with my Fidelity rep. He mentioned a couple of times to "not be afraid to buy bonds". Well, TLT dropped another 20% after that comment, haha.
Real yields have been in the 2%-2.5% range for the past couple of months. That's not bad for fixed income. Could they go higher? I suppose, but real yields have rarely been above 3% for long. Most of the damage in bonds is done now, IMO. As of late September I've got my entire bond allocation put to work in a range of maturities.
The bigger question, for some anyway, is if bond yields are going to drop significantly in the future. I'm doubtful. Interest rates are now back to the range they were in before the Great Recession (2008-2009). I expect the past 15 years were an anomaly that won't be repeated. But again... nobody knows.
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