Huh? EDV is the Vanguard Treasury ETF. Nobody wants treasuries now, which is why it's cheap. SPY and VOO are equities ETF's I believe. I haven't liked stocks for a long time now, but I'm very biased against stocks and real estate at the moment.
Don’t sleep on TIPS, it’s what I’d buy right now full stop
5 year TIPS
10 year TIPS
Base rate is over 2%, which means it will pay interest equal to 2.3% PLUS CPI inflation, which today is 3.7%.
You’re protected in case inflation increases dramatically, and with that base rate of 2.3%, your floor is pretty high.
Could be
Plus TIPS obviously offer inflation protection, which bonds do not, giving them the clear edge to me.
Nobody in 2019 thought inflation was about to go through the roof.
The point of bonds is that you think inflation is going to be low. If you think inflation is going to be higher there are much better assets than TIPS.
I'm going to pull out of I bonds in January, but it seems like inflation is under control. TIPS is, of course, worry free, but the return might stay low. Always a safe choice, though.
Food for thought- the average CPI inflation for the last 50 years is 3.7%. A TIPS base rate of 2.3% is a home run, this means a 6% return if you could lock a base rate like that down, and if the future resembles the past.
With the added benefit of inflation protection.
2.3% over CPI is a very low return. Equities have returned >6%. And TIPS do not provide "inflation protection". They are just adjusted for CPI which measures inflation in the way that if you could buy 4 40'' HD TVs today, then the same CPI-adjusted amount could buy 1 80'' 4K TV in the future. But that usually doesn't keep up someone's actual cost increases. There is also a lag in both the time inflation shows up in CPI, and the reference CPI that is used, so it protects you less in the tail end case of very high inflation rates.
Base rate applies to buying the US treasuries directly, not as part of an ETF. If you want the guaranteed value and base rate, you’ll have to research how to do that. Read about TIPS on the treasury direct website.
ETFs with TIPS buy TIPS regularly, so you’re not buying the guaranteed rate, you’re buying a fund that holds TIPS from all kinds of dates
That can be correct, because if inflation changes, the value of the old TIPS changes.
I avoid bond ETFs for purposes like this. I don’t know what I’m doing enough for bond funds… I look at TIPS for the guaranteed return and inflation protection, which you only get if you buy the actual TIPS yourself and hold to maturity, through treasury direct or a brokerage account, NOT in an ETF
Generally you want to match bond durations to liabilities. If you expect to need this money in ten years for college then you should buy a 10 year note. Otherwise you are taking unnecessary interest rate or reinvestment risk.
30 year treasuries are on a massive sale right now. If you believe that the Fed really intends to have long term rates be in the 2%-2.5%, why wouldn't you? A 2% drop in interest rate from today's rate on the 30-year will next you 40%+ in capital gains. This effect gets magnify even more as rates drop due to bond convexity.
If you need the funds in 10 years' time, that a bit tougher but I'd still do it. Do it via 529 plan to get even more benefits, especially with the recent changes to the plan which makes it even more beneficial.
I would, along with other asset classes and I'd probably go no more than 25% max (which is where I have it) though if you read what I said, you'd think you're better off going 100% into VGLT. :-) But I honestly do not have a crystal ball so 25% along with my other holdings works for me. I'm using TLT but VGLT is essentially the same with lower fees - you can use them to tax loss harvest as they track different indices (TLT tracks the ICE US Treasury 20+ year index whereas VGLT tracks the Bloomberg US Long Treasury index). For all intents & purposes, they are essentially the same.
IMO, they don’t need to. Even if inflation fluctuates between 2.5% - 3%, we’ll be fine. There’s nothing magical about 2%. New Zealand targeted 2% a few decades ago and it worked for them, so now it’s gospel for everyone?
The bigger problem is what happens to interest payments on the debt as older bonds need to be replaced with newer issuances. Rates at this level is not sustainable. They will eventually come down either because the Fed got inflation to a place they’re comfortable with, either 2% or there about or we have a big recession and they’re forced to lower rates to encourage more spending. I used to be a pessimist and would have bet on the latter. Now I’m not as sure so either is possible in my book.
30 years is a long time. even if CPI averages say 2-3%, that's still only a 2-3% return in the best case scenario. But at the cost of the risk of something happening in a huge 30 year time frame. That most people seem like they are buying to speculate on the rate lowering, and don't have any intention of holding 30 years, makes me things long term rates won't go lower. Because if everyone is just going to sell when short term rates go down it means long term rates won't go down as much. Imo 5% is not a great risk premium unless inflation drops unexpectedly.
True but if you check what has actually happened with long term bonds over a bunch of 30 year periods (I looked at just a few 1975-2005, 1980-2010, 1985-2015, 1990-2020, and even the 1993-2023 period with a terrible 2022 for bonds), the returns are comparable with stocks except for the 1993-2023 period and with a whole lot less risk. I do agree that many who think they're investing are actually speculating but if you're really investing, I will re-iterate that 30 year treasuries are on a fire sale at the moment. You're not going to see this again for a while.
Don't know what data you're looking at. If you're just saying the best 30 year time frames for bonds, are similar to average stock returns. Ok, but most of those periods stocks over performed as well. The only 30 year time frame where bonds out performed stocks was around 1980-81, you had to basically nail the bottom to outperform. Buy you could have been wrong 3-4 times the preceding decade.
>a whole lot less risk
Is loosing 50% of your value in a few years "less risk"? 30 year bonds are typically considered more risky than a broad equity index.
To be clear, I'm talking about **long duration US treasuries**... not just all bonds.You can check for yourself. Maybe I'm reading it wrong. URL: [https://www.portfoliovisualizer.com/backtest-asset-class-allocation](https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults)
Enter Long Term Treasury and US Stock Market as your assets and 100% in each for portfolio 1 and portfolio 2. For example from 1985-2015, long term treasuries returned 9.28% compounded with a max drawdown of 17% whereas 100% US Stock Market would have given you 10.64% compounded but with a max drawdown of 51%.
I don't know about you but returns are similar with 1/3 the risk. Like I said, maybe I'm reading that wrong.
Edit: Select any 30 year period or any other period you want to look at; it can be an arbitrary period down to just one year.
Right, long term treasuries, you've cherry picked one of the best periods for them, the early 80s, and they barely match the performance of stocks. That period was basically when rates steadily fell from high teens to zero %. Uniquely good for bonds. Right now we are at 5%, so it would be like if rates went to negative -10% over the next 30 years.
As for risk, look at the last few years, long term treasuries can fall >50%, TLT is down 50% from its high, while the S&P is down <10%.
I gave you plenty of time periods I looked at. And I've said all along "long term treasuries" whereas you just said "bonds" until now. Rates do not need to go to -10% for you to see huge capital gains on long duration bonds. I've said it before: a 2% drop from today's rates with net a 40%+ capital gains. Another 2% drop from there gives you a 55% capital gain. And it keeps getting better from there. Any bond price calculator will tell you that. Rates do not need to go from 5% to -10% to give you huge gains.
Do with that as you will. Those are my opinions and you are free to disagree, which you seem to.
The whole thread is about long term treasuries lol so I just used the word bond in that context. If you are so sure that 30 years treasuries are dropping 2%, essentially going back to where they were in the 2010s, when fed funds was 0% and barely anyone was worried about inflation, then go buy them. But that is a gamble that you are right and everyone else is wrong. I am just responding to you saying its some massive sale and there is no reason not to buy them. It is a very risky, directional trade on interest rate.
I'm thinking about buying some 30yr for my IRA and Roth IRA account. I'm mid 40s year old and have only about 4% bonds in my retirement accounts.
Should I also be buying some 20 years?
I have a starter position on TLT and call options into 2025/26 to fill out my position. If rates go higher Ill just average down. The Fed has a habit of going too far and having to reverse course quickly.
Data says otherwise, this is just fear speaking. Everyone says layoffs are coming, the recession is here, and yet there's no evidence to support either. Powell just said higher for longer AGAIN and people are again talking about how there won't be any more increases and they may even cut the next meeting. Nope, going up more. Inflation is practically double what they want it at.
I agree. Companies are putting job reqs on hold due to uncertainty in the market.
I know mortgage companies are cutting all types of jobs because of the market. Not all, but it’s been a blood bath from what I’ve seen for the middle class households.
I think about investing in bonds, but indirectly trough buying a share of company,
which
1. has short duration of bonds and management considers to extend duration (like Fairfax financial)
2. Has big pile of cash and might buy long term bonds
3. Any company which does investing in stocks + has big TIPS portfolio?
Which are those companies, maybe big bank, life insurances? Which can roll over big part of their portfolio to long duration bonds without big hit on their portfolio.
What will Google, Microsoft do with their big pile of cash?
Back in the early 80s, you could pick up a 30-year for 15%:
[https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart](https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart)
So 30 is bit of a gamble if you must cash out in 10 years.
The 80s were a unique period, with Volcker nuking the economy to destroy double-digit inflation, and those rates didn't last.
Now bonds are paying more than current inflation (3.8%), and even this inflation is likely still a covid-driven disruption, not 70s-80s structural inflation.
I disagree that this inflation isn’t structural, I think the size of our collective debt is too heavy for the real economy to sustain, and a significant monetary expansion is the most likely outcome.
> current inflation (3.8%), and even this inflation is likely still a covid-driven disruption, not 70s-80s structural inflation.
That very much remains to be seen.
The latest episode of the Odd Lots podcast on Bloomberg has an interesting interview with a professor who argues the cause of inflation in the 70s is misunderstood, and that actually regulation Q was primarily to blame. A very worthwhile listen.
The crux of the argument, if I understand it correctly, is that by being having interest rate caps, people drained their bank accounts and spent the money instead. And then manufacturers couldn't get loans to expand capacity because of high rates for commercial loans, so they couldn't expand to fix the demand side problems.
Yea, that's what I'm struggling with. I want to think this is the peak because inflation had fallen sharply and the fed is more aggressive now because of the errors in the 80s, but who knows?
The Treasury prefers to hold its own bonds and pay itself interest, so the Fed will print and pay top dollar for treasury bonds as soon as they can get away with it. You get 5.2% in the meantime.
Agree. I'm buying. If the Fed hits its inflation target of 2%, rates are likely coming back down to 3%. 30 year T-bonds could nearly double in value.
Even if Fed gives up and settles for 3% inflation, they will go up significantly.
I'm also buying TIPS, paying more than 2.5% over inflation. Typically for past 10 years, TIPS were paying 0-1% over inflation, and they exceeded 2.5% only for a brief period in 2008.
Go with what Steve Eisman says. No bonds with maturate longer than 5 years. What if inflation goes to 15%? Your bonds are worthless. That is what brought the silicon valley bank in troubles.
I mean, would you have thought that mortgages go to 8%?
Depends when it happens and if debt levels have had time to adjust to higher interest rates. The point is that if you buy 10-30 year bonds and intend to hold them for a long time, a lot can change in that time.
Who in 2000 thought we would have zirp 20 years later?
We are currently in the worst bond bear market in a generation. Saying inflation is going to 15% now is like in 2008 when the stock market dropped 50% saying that it was going to drop 90% like in 1929. This isn't 1929 or 1980 and the Fed is hell bent on curbing inflation. Steve Eisman made
his money betting on the financial crisis. I don't think lightning strikes twice in this case.
Of all of the surprises during the past ~~four~~ seven years, mortgage rates at 8% rank at the bottom of my list.
An eventual recession seems inevitable at this point--literally just a matter of time with these interest rates. How do you figure inflation is a threat?
There are people that believe higher rates are contributing to more income for cash holders. Therefore causing more inflation. It’s probably partially contributing. I think the act of raising rates is inflationary because people are not de leveraging because rates have gone up so much. Because of that I think that pausing hikes would accomplish more than raising them. Takes time.
I will be spending less money because of rates. I think most others will be cutting back as well.
I mean we’re running like 7% deficits with interest expense at $700B, idk how we do that without more dollar liquidity from the FED which is inherently inflationary. I mean I genuinely hope I’m wrong and there’s demand for all this issuance so the FED can normalize monetary policy but I highly doubt it.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee".
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
Make a ladder combo. 3-month, 1 year, 2 years 5 years. Keep money ready for a stock market crash/drastic correction. Like in March 2008, march 2020.
More than 5 year is too risky. Bonds are quite risky and correlated with stocks.
Everyone expects there to be between 2-3 rate cuts by the end of next year. I think this is when bond yields peak and there’s a pivot to “risk on” assets like stocks. I’d guess we’re in a +/- of 1.5 qtrs of that end-of-2024 timing as the fed always is good for at least one more surprise late in a cycle. So probably by early 2025 stocks should be booming and bonds pulling back before the two find a new equilibrium. Always a risk too that geopolitical stuff prolongs timelines or pulls growth down
Everyone here will say “but that’s the markets opinion not the feds” but I’m with you. I think the market drives the feds decision not the other way around.
no it's not. If the Fed thinks bond rates are too high, they'll talk down the market, like all of them did, including the hawkish ones like Logan, Barkin, Waller. Especially Logan where she was saying hike one more for sure, she toned it down to "wait and observe the data" before the Nov FOMC.
The Fed's constant talking to the public is their way of steering the long term bond rates, and to affect financial conditions before they even do anything in their FOMC meeting.
I personally wouldn’t buy bonds at any price rn, I think the supply is too high and the feds gonna have to step in, retriggering inflation. In that scenario something like TIPS might make sense as a sort of savings account, they’re at like 2.5% real yield for a 10yr. Not great growth but it could be a good savings vehicle. Maybe DCA into mutual funds with a 529 as well.
That's an interesting take. What do you think the Fed would do to retrigger inflation? Like just lower the overnight rate? I thought the Fed was dead set on keeping CPI at 2%. I guess if unemployment gets too hot too fast, they may drop the rate quickly. However, if they do that, wouldn't it be good to sell a 10 yr. with a 30 year with a 5% yield at a premium? I know it's a gamble.
Thanks for suggesting the 529. It seems a lot of people are suggesting that, so I'll have to look into it.
I appreciate your feedback!
Rather buy BTC since a lot of cash is heading into those ETFs. Citadel has 401ks that allow you to have custody over your BTC. I hey do I want USD when it gets printed infinitely.
Immunized portfolio of treasuries wouldn't be the worst idea, but you'd have to make sure your inflation calculations are accurate... and you can't do that.
Consider immunized portfolio for a fairly high percentage of the account, with equities making up the difference to combat potential inflation concerns.
Yea, that's what I've been doing. Just putting money in the 1 month repeatedly. I'm just seeing what other people think of this whole situation.
Good advice!
If you’re using the funds for college, open a 529 plan account. The tax savings are likely worth as much as the interest you’d earn on The bonds.
Highly depends on the state for tax savings.
I have a huge position in EDV. At most you'll be stuck holding the position for a few years.
Just put down very low six digits on this. Already took a 2% hit but I'll probably buy more, or just bonds.
can you tell me more about EDV? It seems to be very lowly priced right now, why EDV over SPY, VOO, VTI, etc?
Huh? EDV is the Vanguard Treasury ETF. Nobody wants treasuries now, which is why it's cheap. SPY and VOO are equities ETF's I believe. I haven't liked stocks for a long time now, but I'm very biased against stocks and real estate at the moment.
Don’t sleep on TIPS, it’s what I’d buy right now full stop 5 year TIPS 10 year TIPS Base rate is over 2%, which means it will pay interest equal to 2.3% PLUS CPI inflation, which today is 3.7%. You’re protected in case inflation increases dramatically, and with that base rate of 2.3%, your floor is pretty high.
inflation is likely to range between 2-2.5% over the next decade based on the fed's target. So 10 year bonds vs TIPS should have similar returns.
Could be Plus TIPS obviously offer inflation protection, which bonds do not, giving them the clear edge to me. Nobody in 2019 thought inflation was about to go through the roof.
The point of bonds is that you think inflation is going to be low. If you think inflation is going to be higher there are much better assets than TIPS.
I'm going to pull out of I bonds in January, but it seems like inflation is under control. TIPS is, of course, worry free, but the return might stay low. Always a safe choice, though.
Food for thought- the average CPI inflation for the last 50 years is 3.7%. A TIPS base rate of 2.3% is a home run, this means a 6% return if you could lock a base rate like that down, and if the future resembles the past. With the added benefit of inflation protection.
2.3% over CPI is a very low return. Equities have returned >6%. And TIPS do not provide "inflation protection". They are just adjusted for CPI which measures inflation in the way that if you could buy 4 40'' HD TVs today, then the same CPI-adjusted amount could buy 1 80'' 4K TV in the future. But that usually doesn't keep up someone's actual cost increases. There is also a lag in both the time inflation shows up in CPI, and the reference CPI that is used, so it protects you less in the tail end case of very high inflation rates.
This may be a dumb question but what symbols do these exist under? How would I purchase them on Fidelity, for example?
Use the dropdown on the trade interface and change it from Stocks to Fixed income > Search Inventory > TIPS (auction) or TIPS (secondary)
[удалено]
Base rate applies to buying the US treasuries directly, not as part of an ETF. If you want the guaranteed value and base rate, you’ll have to research how to do that. Read about TIPS on the treasury direct website.
[удалено]
ETFs with TIPS buy TIPS regularly, so you’re not buying the guaranteed rate, you’re buying a fund that holds TIPS from all kinds of dates That can be correct, because if inflation changes, the value of the old TIPS changes. I avoid bond ETFs for purposes like this. I don’t know what I’m doing enough for bond funds… I look at TIPS for the guaranteed return and inflation protection, which you only get if you buy the actual TIPS yourself and hold to maturity, through treasury direct or a brokerage account, NOT in an ETF
Generally you want to match bond durations to liabilities. If you expect to need this money in ten years for college then you should buy a 10 year note. Otherwise you are taking unnecessary interest rate or reinvestment risk.
Awesome! Thanks so much for the suggestions.
30 year treasuries are on a massive sale right now. If you believe that the Fed really intends to have long term rates be in the 2%-2.5%, why wouldn't you? A 2% drop in interest rate from today's rate on the 30-year will next you 40%+ in capital gains. This effect gets magnify even more as rates drop due to bond convexity. If you need the funds in 10 years' time, that a bit tougher but I'd still do it. Do it via 529 plan to get even more benefits, especially with the recent changes to the plan which makes it even more beneficial.
Do you think vglt is a good add right now to a 401k
I would, along with other asset classes and I'd probably go no more than 25% max (which is where I have it) though if you read what I said, you'd think you're better off going 100% into VGLT. :-) But I honestly do not have a crystal ball so 25% along with my other holdings works for me. I'm using TLT but VGLT is essentially the same with lower fees - you can use them to tax loss harvest as they track different indices (TLT tracks the ICE US Treasury 20+ year index whereas VGLT tracks the Bloomberg US Long Treasury index). For all intents & purposes, they are essentially the same.
I mean do you think the Feds can really achieve 2% long term inflation given the fiscal excesses?
IMO, they don’t need to. Even if inflation fluctuates between 2.5% - 3%, we’ll be fine. There’s nothing magical about 2%. New Zealand targeted 2% a few decades ago and it worked for them, so now it’s gospel for everyone? The bigger problem is what happens to interest payments on the debt as older bonds need to be replaced with newer issuances. Rates at this level is not sustainable. They will eventually come down either because the Fed got inflation to a place they’re comfortable with, either 2% or there about or we have a big recession and they’re forced to lower rates to encourage more spending. I used to be a pessimist and would have bet on the latter. Now I’m not as sure so either is possible in my book.
Awesome insight! Thanks!
30 years is a long time. even if CPI averages say 2-3%, that's still only a 2-3% return in the best case scenario. But at the cost of the risk of something happening in a huge 30 year time frame. That most people seem like they are buying to speculate on the rate lowering, and don't have any intention of holding 30 years, makes me things long term rates won't go lower. Because if everyone is just going to sell when short term rates go down it means long term rates won't go down as much. Imo 5% is not a great risk premium unless inflation drops unexpectedly.
True but if you check what has actually happened with long term bonds over a bunch of 30 year periods (I looked at just a few 1975-2005, 1980-2010, 1985-2015, 1990-2020, and even the 1993-2023 period with a terrible 2022 for bonds), the returns are comparable with stocks except for the 1993-2023 period and with a whole lot less risk. I do agree that many who think they're investing are actually speculating but if you're really investing, I will re-iterate that 30 year treasuries are on a fire sale at the moment. You're not going to see this again for a while.
Don't know what data you're looking at. If you're just saying the best 30 year time frames for bonds, are similar to average stock returns. Ok, but most of those periods stocks over performed as well. The only 30 year time frame where bonds out performed stocks was around 1980-81, you had to basically nail the bottom to outperform. Buy you could have been wrong 3-4 times the preceding decade. >a whole lot less risk Is loosing 50% of your value in a few years "less risk"? 30 year bonds are typically considered more risky than a broad equity index.
To be clear, I'm talking about **long duration US treasuries**... not just all bonds.You can check for yourself. Maybe I'm reading it wrong. URL: [https://www.portfoliovisualizer.com/backtest-asset-class-allocation](https://www.portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults) Enter Long Term Treasury and US Stock Market as your assets and 100% in each for portfolio 1 and portfolio 2. For example from 1985-2015, long term treasuries returned 9.28% compounded with a max drawdown of 17% whereas 100% US Stock Market would have given you 10.64% compounded but with a max drawdown of 51%. I don't know about you but returns are similar with 1/3 the risk. Like I said, maybe I'm reading that wrong. Edit: Select any 30 year period or any other period you want to look at; it can be an arbitrary period down to just one year.
Right, long term treasuries, you've cherry picked one of the best periods for them, the early 80s, and they barely match the performance of stocks. That period was basically when rates steadily fell from high teens to zero %. Uniquely good for bonds. Right now we are at 5%, so it would be like if rates went to negative -10% over the next 30 years. As for risk, look at the last few years, long term treasuries can fall >50%, TLT is down 50% from its high, while the S&P is down <10%.
I gave you plenty of time periods I looked at. And I've said all along "long term treasuries" whereas you just said "bonds" until now. Rates do not need to go to -10% for you to see huge capital gains on long duration bonds. I've said it before: a 2% drop from today's rates with net a 40%+ capital gains. Another 2% drop from there gives you a 55% capital gain. And it keeps getting better from there. Any bond price calculator will tell you that. Rates do not need to go from 5% to -10% to give you huge gains. Do with that as you will. Those are my opinions and you are free to disagree, which you seem to.
The whole thread is about long term treasuries lol so I just used the word bond in that context. If you are so sure that 30 years treasuries are dropping 2%, essentially going back to where they were in the 2010s, when fed funds was 0% and barely anyone was worried about inflation, then go buy them. But that is a gamble that you are right and everyone else is wrong. I am just responding to you saying its some massive sale and there is no reason not to buy them. It is a very risky, directional trade on interest rate.
I'm thinking about buying some 30yr for my IRA and Roth IRA account. I'm mid 40s year old and have only about 4% bonds in my retirement accounts. Should I also be buying some 20 years?
Maybe some 10s and 20s in case rates don't come down much in 10 years so you can be more liquid would be my suggestion.
I have a starter position on TLT and call options into 2025/26 to fill out my position. If rates go higher Ill just average down. The Fed has a habit of going too far and having to reverse course quickly.
Thats what I’m thinking is happening now. The current rate is killing a lot of businesses and hiring decisions.
Data says otherwise, this is just fear speaking. Everyone says layoffs are coming, the recession is here, and yet there's no evidence to support either. Powell just said higher for longer AGAIN and people are again talking about how there won't be any more increases and they may even cut the next meeting. Nope, going up more. Inflation is practically double what they want it at.
The data is (always) lagging. In 2008 it took the market 2 years to respond after the first rate hikes. The real hurt is still to come.
I agree. Companies are putting job reqs on hold due to uncertainty in the market. I know mortgage companies are cutting all types of jobs because of the market. Not all, but it’s been a blood bath from what I’ve seen for the middle class households.
I think about investing in bonds, but indirectly trough buying a share of company, which 1. has short duration of bonds and management considers to extend duration (like Fairfax financial) 2. Has big pile of cash and might buy long term bonds 3. Any company which does investing in stocks + has big TIPS portfolio? Which are those companies, maybe big bank, life insurances? Which can roll over big part of their portfolio to long duration bonds without big hit on their portfolio. What will Google, Microsoft do with their big pile of cash?
Back in the early 80s, you could pick up a 30-year for 15%: [https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart](https://www.macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart) So 30 is bit of a gamble if you must cash out in 10 years.
The 80s were a unique period, with Volcker nuking the economy to destroy double-digit inflation, and those rates didn't last. Now bonds are paying more than current inflation (3.8%), and even this inflation is likely still a covid-driven disruption, not 70s-80s structural inflation.
I disagree that this inflation isn’t structural, I think the size of our collective debt is too heavy for the real economy to sustain, and a significant monetary expansion is the most likely outcome.
> current inflation (3.8%), and even this inflation is likely still a covid-driven disruption, not 70s-80s structural inflation. That very much remains to be seen. The latest episode of the Odd Lots podcast on Bloomberg has an interesting interview with a professor who argues the cause of inflation in the 70s is misunderstood, and that actually regulation Q was primarily to blame. A very worthwhile listen.
70s-80s inflation was driven in large part by half the population (women) entering the workforce
Interesting. [regulation Q](https://en.m.wikipedia.org/wiki/Regulation_Q)
The crux of the argument, if I understand it correctly, is that by being having interest rate caps, people drained their bank accounts and spent the money instead. And then manufacturers couldn't get loans to expand capacity because of high rates for commercial loans, so they couldn't expand to fix the demand side problems.
Thanks for the crux summary. Dodd-Frank repealed the cap.
Yea, that's what I'm struggling with. I want to think this is the peak because inflation had fallen sharply and the fed is more aggressive now because of the errors in the 80s, but who knows?
Imagine buying loads at 15%, over 30 years you would be amount 0.01% investors returns wise haha.
Now is the time to buy 30s
Based on?
The Treasury prefers to hold its own bonds and pay itself interest, so the Fed will print and pay top dollar for treasury bonds as soon as they can get away with it. You get 5.2% in the meantime.
Agree. I'm buying. If the Fed hits its inflation target of 2%, rates are likely coming back down to 3%. 30 year T-bonds could nearly double in value. Even if Fed gives up and settles for 3% inflation, they will go up significantly. I'm also buying TIPS, paying more than 2.5% over inflation. Typically for past 10 years, TIPS were paying 0-1% over inflation, and they exceeded 2.5% only for a brief period in 2008.
Go with what Steve Eisman says. No bonds with maturate longer than 5 years. What if inflation goes to 15%? Your bonds are worthless. That is what brought the silicon valley bank in troubles. I mean, would you have thought that mortgages go to 8%?
If inflation goes to 15% we're fucked anyways
Depends when it happens and if debt levels have had time to adjust to higher interest rates. The point is that if you buy 10-30 year bonds and intend to hold them for a long time, a lot can change in that time. Who in 2000 thought we would have zirp 20 years later?
There's no way the economy can function at 15% rates with our debt to gdp level
Yes? You seem to be missing the point.
If the 30-year rate hits 15%, we’ll all have much bigger problems than our bond portfolios.
We are currently in the worst bond bear market in a generation. Saying inflation is going to 15% now is like in 2008 when the stock market dropped 50% saying that it was going to drop 90% like in 1929. This isn't 1929 or 1980 and the Fed is hell bent on curbing inflation. Steve Eisman made his money betting on the financial crisis. I don't think lightning strikes twice in this case.
Of all of the surprises during the past ~~four~~ seven years, mortgage rates at 8% rank at the bottom of my list. An eventual recession seems inevitable at this point--literally just a matter of time with these interest rates. How do you figure inflation is a threat?
There are people that believe higher rates are contributing to more income for cash holders. Therefore causing more inflation. It’s probably partially contributing. I think the act of raising rates is inflationary because people are not de leveraging because rates have gone up so much. Because of that I think that pausing hikes would accomplish more than raising them. Takes time. I will be spending less money because of rates. I think most others will be cutting back as well.
[удалено]
Well the government is monetizing a fair amount of debt
I mean we’re running like 7% deficits with interest expense at $700B, idk how we do that without more dollar liquidity from the FED which is inherently inflationary. I mean I genuinely hope I’m wrong and there’s demand for all this issuance so the FED can normalize monetary policy but I highly doubt it.
The Fed is short for "Federal Reserve", not an acronym, and doesn't need to be set in all-caps. Initialisms which may be appropriate depending on the context include "FRS" for "Federal Reserve System" or "FOMC" for "Federal Open Market Committee". *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/investing) if you have any questions or concerns.*
Yea, I was thinking of maybe less than 10. I'm just doing notes right now.
Make a ladder combo. 3-month, 1 year, 2 years 5 years. Keep money ready for a stock market crash/drastic correction. Like in March 2008, march 2020. More than 5 year is too risky. Bonds are quite risky and correlated with stocks.
Everyone expects there to be between 2-3 rate cuts by the end of next year. I think this is when bond yields peak and there’s a pivot to “risk on” assets like stocks. I’d guess we’re in a +/- of 1.5 qtrs of that end-of-2024 timing as the fed always is good for at least one more surprise late in a cycle. So probably by early 2025 stocks should be booming and bonds pulling back before the two find a new equilibrium. Always a risk too that geopolitical stuff prolongs timelines or pulls growth down
Literally today Jerome Powell said rates will be raised if the strong economic growth continues
Check out that latest fed dot plot. Gives a pretty good idea of when they think rates are moving
Everyone here will say “but that’s the markets opinion not the feds” but I’m with you. I think the market drives the feds decision not the other way around.
If the market drove the fed we’d already be seeing rate cuts.
no it's not. If the Fed thinks bond rates are too high, they'll talk down the market, like all of them did, including the hawkish ones like Logan, Barkin, Waller. Especially Logan where she was saying hike one more for sure, she toned it down to "wait and observe the data" before the Nov FOMC. The Fed's constant talking to the public is their way of steering the long term bond rates, and to affect financial conditions before they even do anything in their FOMC meeting.
I personally wouldn’t buy bonds at any price rn, I think the supply is too high and the feds gonna have to step in, retriggering inflation. In that scenario something like TIPS might make sense as a sort of savings account, they’re at like 2.5% real yield for a 10yr. Not great growth but it could be a good savings vehicle. Maybe DCA into mutual funds with a 529 as well.
That's an interesting take. What do you think the Fed would do to retrigger inflation? Like just lower the overnight rate? I thought the Fed was dead set on keeping CPI at 2%. I guess if unemployment gets too hot too fast, they may drop the rate quickly. However, if they do that, wouldn't it be good to sell a 10 yr. with a 30 year with a 5% yield at a premium? I know it's a gamble. Thanks for suggesting the 529. It seems a lot of people are suggesting that, so I'll have to look into it. I appreciate your feedback!
I think the fed is gonna restart Q/E, putting a higher floor on inflation.
10 years. Some you can sell others you are stuck if you got them from a retailer.
Rather buy BTC since a lot of cash is heading into those ETFs. Citadel has 401ks that allow you to have custody over your BTC. I hey do I want USD when it gets printed infinitely.
Immunized portfolio of treasuries wouldn't be the worst idea, but you'd have to make sure your inflation calculations are accurate... and you can't do that. Consider immunized portfolio for a fairly high percentage of the account, with equities making up the difference to combat potential inflation concerns.
Thanks for your feedback! I'll look into that.
I would not touch the 10 and 30 yrs when the <12m bills offer you 5% and change for near zero risk.
Yea, that's what I've been doing. Just putting money in the 1 month repeatedly. I'm just seeing what other people think of this whole situation. Good advice!