Hi Tyler, want to say I just came across your web many members mentioned and have huge respect to your web that puts everything together, like, in explaining the convexity concept of bond. Its truly nice to have an objective point of view instead of one-sided argument in favor or against TLT.Tyler wrote: ↑Fri Aug 14, 2020 10:27 pmThat's only partially true. If you look at real rates rather than nominal rates, the low rates today are not that unusual and negative real rates have been much deeper in the past than they are now.
In fact negative real rates are one of the situations where gold tends to shine. So I'd argue that the PP is better prepared for this situation than almost any traditional portfolio of stocks and bonds.
Along that line, one way to overcome the fear of a portfolio is to appreciate the strength of the team over the daily performance of any one player. A well-built portfolio expects the worst and thrives in adversity.
Though I have one question:
1) For longer duration bonds, once the interest rate is getting lower and negative , their values can appreciate at a much greater pace, and act as a nice protection to the portfolio.
But one concern raised by some investors like Ray Dalio is more about how low the yield could go, here's the extract of the article from https://www.bridgewater.com/grappling-with-the-new-reality-of-zero-bond-yields-virtually-everywhere:
While one can’t say for sure how low yields could go, the obvious limitation is that at a certain level, cash hoarding becomes a more attractive alternative. Given the frictions between the central bank policy rate and the rates facing other borrowers and lenders (we would guess around -1%), policy rates would be unlikely to trigger a move to cash in most countries. Below that point, it becomes less clear. And at least for now, central bankers across the world have expressed growing hesitancy about further use of negative rates as a policy tool, in particular focusing on the potential adverse effects for the banking system, which could weaken the efficacy of such policies.
My confused thought:
If the yield still haven't reached -1% and -1% is the lowest bottom yield can go:
We could still expect to see an asymmetrical potential reward (biased towards the upside) in TLT, and its worth holding some to hedge against risk of further interest reduction.
However, if the yield already reached the -1% and -1% is the lowest bottom yield can go:
It bascially means all potential reward are fully exhausted, and TLT basically couldn't have any asymmetrical potential rewards?
What are your point of view with regard to the lowest limit of the yield?
2) Aside from GOLD, do you think TIPs are good diversifiers we could consider as inflation-hedge assets?