Are most people here sticking with Treasuries?

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Re: Are most people here sticking with Treasuries?

Post by Smith1776 » Sat Sep 03, 2022 3:27 pm

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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sat Sep 03, 2022 3:59 pm

Smith1776 wrote:
Sat Sep 03, 2022 3:27 pm
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This is excellent
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Re: Are most people here sticking with Treasuries?

Post by Pointedstick » Sat Sep 03, 2022 4:27 pm

As an asset class on its own, long treasuries are uniquely terrible when interest rates are going up, which should be quite obvious. As part of a PP, you could still conceivably harvest some gains from them with tight rebalancing bands as they oscillate up and down within their general long-term trajectory of losing value, but that's sort of squeezing blood from a stone.

When the Fed announced they were going to start raising interest rates this year, I convinced my wife and sister to sell their long treasuries, and they've avoided losing a lot of portfolio value as a result. I felt like a genius, but really this was no great feat of intellectual might; long treasuries respond almost entirely to the Fed-set interest rate which is announced in advance! I think this makes long treasuries an achilles' heel of the PP because they violate the general ethos that you can't know what asset class will do well going forward. In fact you can know the performance of long treasuries because the Fed explicitly tells you!

If I were designing a new PP-style portfolio more suitable for the kind of world we actually live in (i.e. a fiat currency regime with a central bank that sets interest rates), long treasuries wouldn't be a part of it. They would be strictly a VP play because their relatively predictable performance makes them quite easy to speculate with.
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sat Sep 03, 2022 4:50 pm

Pointedstick wrote:
Sat Sep 03, 2022 4:27 pm
As an asset class on its own, long treasuries are uniquely terrible when interest rates are going up, which should be quite obvious. As part of a PP, you could still conceivably harvest some gains from them with tight rebalancing bands as they oscillate up and down within their general long-term trajectory of losing value, but that's sort of squeezing blood from a stone.

When the Fed announced they were going to start raising interest rates this year, I convinced my wife and sister to sell their long treasuries, and they've avoided losing a lot of portfolio value as a result. I felt like a genius, but really this was no great feat of intellectual might; long treasuries respond almost entirely to the Fed-set interest rate which is announced in advance! I think this makes long treasuries an achilles' heel of the PP because they violate the general ethos that you can't know what asset class will do well going forward. In fact you can know the performance of long treasuries because the Fed explicitly tells you!

If I were designing a new PP-style portfolio more suitable for the kind of world we actually live in (i.e. a fiat currency regime with a central bank that sets interest rates), long treasuries wouldn't be a part of it. They would be strictly a VP play because their relatively predictable performance makes them quite easy to speculate with.
Does anyone know if there is data showing the correlation between short term fed controlled overnight rates and rates for long term treasuries?
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sat Sep 03, 2022 4:57 pm

I have data on intermediate term bonds vs the fed moving short term rates more than 1% in a year over the last 40 plus years .

In all cases bonds went up in value not down except 1994 . So things are not that predictable as far as fed raises rates and bonds fall ..

The left is how much the fed raised rates , the right is what intermediate term bonds did , which I would think would move in the same direction as the longer term bonds …I have no data on that though handy


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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sat Sep 03, 2022 5:21 pm

mathjak107 wrote:
Sat Sep 03, 2022 4:57 pm
I have data on intermediate term bonds vs the fed moving short term rates more than 1% in a year over the last 40 plus years .

In all cases bonds went up in value not down except 1994 . So things are not that predictable as far as fed raises rates and bonds fall ..

The left is how much the fed raised rates , the right is what intermediate term bonds did , which I would think would move in the same direction as the longer term bonds …I have no data on that though handy


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Is the info on the right price only, or also including coupon payments?

I think it's fairly easy to get historical data for overnight rates, but I don't know where to find data (let's say monthly data) for yield on 30 year bonds.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sat Sep 03, 2022 5:25 pm

It is total return
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sat Sep 03, 2022 5:32 pm

The data on total returns i posted pretty much matches the returns here give or take a point or so on the

Bloomberg US Aggregate Bond Index ..

All but once a 1” rise in fed funds rate had bonds move the opposite way and rise in value until now

https://www.thebalance.com/stocks-and-b ... nce-417028
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Re: Are most people here sticking with Treasuries?

Post by Pointedstick » Sat Sep 03, 2022 5:42 pm

AGG != TLT. Corporate bonds are affected by a lot more than interest rates and often behave in a very stock-like manner in their actual performance. There's a reason the PP focuses on long treasuries, and not medium duration bonds of all sectors.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sat Sep 03, 2022 5:44 pm

Longer term bond moves are like stocks ..they are influenced by greed , fear , and perception of future inflation.

Looking at Fred’s tracings for treasuries for the 10 and 30 year show similar moves for those years to agg …..

So pretty much when the feds fund rates were raised , in all except 1994 bond values went up whether treasuries or corporate or 10 year or 30 year.

Remember though this is only in the years the fed raised more then 1 percent.

It is possible the following year the fed raised less then 1% and bonds fell
Last edited by mathjak107 on Sat Sep 03, 2022 5:58 pm, edited 2 times in total.
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Re: Are most people here sticking with Treasuries?

Post by Pointedstick » Sat Sep 03, 2022 5:48 pm

Right, and that's true of all assets. But like the fundamental value of a stock is based on the value of its company, the fundamental value of a long-duration treasury bond is based the current interest rate compared to its coupon rate. And the future direction of "the current interest rate" is something that can be predicted a lot more easily than a company's future value, because the Fed tells it to us.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sat Sep 03, 2022 5:50 pm

Peter lynch once said that if he could guess the direction of interest rates even a few times in a row he would call that extraordinary.


Peter lynch

“. No one can predict interest rates right three times in a row, or they’d be a billionaire. Certainly, there’s not that many billionaires on the planet.”
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sat Sep 03, 2022 6:22 pm

mathjak107 wrote:
Sat Sep 03, 2022 5:25 pm
It is total return
If it's total return, it's going to be highly influenced by the starting coupon rate. In other words, if rates are high enough, then you'll still show a profit even if rates rise and the value of your bond drops slightly.
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sat Sep 03, 2022 6:30 pm

dockinGA wrote:
Sat Sep 03, 2022 4:50 pm
Pointedstick wrote:
Sat Sep 03, 2022 4:27 pm
As an asset class on its own, long treasuries are uniquely terrible when interest rates are going up, which should be quite obvious. As part of a PP, you could still conceivably harvest some gains from them with tight rebalancing bands as they oscillate up and down within their general long-term trajectory of losing value, but that's sort of squeezing blood from a stone.

When the Fed announced they were going to start raising interest rates this year, I convinced my wife and sister to sell their long treasuries, and they've avoided losing a lot of portfolio value as a result. I felt like a genius, but really this was no great feat of intellectual might; long treasuries respond almost entirely to the Fed-set interest rate which is announced in advance! I think this makes long treasuries an achilles' heel of the PP because they violate the general ethos that you can't know what asset class will do well going forward. In fact you can know the performance of long treasuries because the Fed explicitly tells you!

If I were designing a new PP-style portfolio more suitable for the kind of world we actually live in (i.e. a fiat currency regime with a central bank that sets interest rates), long treasuries wouldn't be a part of it. They would be strictly a VP play because their relatively predictable performance makes them quite easy to speculate with.
Does anyone know if there is data showing the correlation between short term fed controlled overnight rates and rates for long term treasuries?
I was able to find data going back to 1978 for 30 year treasuries and fed funds rate from macrotrends. Using that data, there is a correlation factor of 0.133 for the two sets of data. Not very granular though, since it's using the opening rate for each year.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 2:24 am

dockinGA wrote:
Sat Sep 03, 2022 6:22 pm
mathjak107 wrote:
Sat Sep 03, 2022 5:25 pm
It is total return
If it's total return, it's going to be highly influenced by the starting coupon rate. In other words, if rates are high enough, then you'll still show a profit even if rates rise and the value of your bond drops slightly.
I think total return will end up the same when rates change ..it is just a matter of more gain from the coupon rate and less from price change . It is a while since I looked at this so don’t quote me but I do believe total return is the same .

Kind of like an x percent total return in stock and whether it is made of a higher dividend and less price change or a lower dividend and more price change to reach the same point
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sun Sep 04, 2022 5:40 am

mathjak107 wrote:
Sun Sep 04, 2022 2:24 am
dockinGA wrote:
Sat Sep 03, 2022 6:22 pm
mathjak107 wrote:
Sat Sep 03, 2022 5:25 pm
It is total return
If it's total return, it's going to be highly influenced by the starting coupon rate. In other words, if rates are high enough, then you'll still show a profit even if rates rise and the value of your bond drops slightly.
I think total return will end up the same when rates change ..it is just a matter of more gain from the coupon rate and less from price change . It is a while since I looked at this so don’t quote me but I do believe total return is the same .

Kind of like an x percent total return in stock and whether it is made of a higher dividend and less price change or a lower dividend and more price change to reach the same point
No, I don't think that's correct. If you have a 10 year bond with a 10% coupon rate, and at the end of the first year the going rate for your bond is 11%, you will still show a total return profit at the end of year 1. If you have a bond with a 3% coupon and at the end of year 1 the going rate is 4%, you will have a total return loss.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 5:43 am

I don’t believe you have the relationship correct as far as the drop goes .

Well we need Tyler to tell us if this is the case ..I believe the total return will be the same no matter how it is arrived at ..

The higher the rate the less percentage the price change should account for and the lower the rate the bigger price change .

I believe those returns are irrelevant to which is higher in the data i posted.

At the end of the day a 12% total return is a 12% total return on that bond index in 1989 with 7% bonds as it would be today with 3-4% bonds if it ended up that way at some point as a total return with the same duration fund
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 6:00 am

i found this chart .

very interesting.


it shows on the 10 year the total return is about the same from minus 1% to about plus 6% . the 30 year shows little change from about 7% all the way out if this chart is correct.
not sure if it is answering the question though fully but it does show not much change over certain rate changes vs price changes at times and at other times coupon rate does have more effect .

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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sun Sep 04, 2022 6:13 am

mathjak107 wrote:
Sun Sep 04, 2022 6:00 am
i found this chart .

very interesting.


it shows on the 10 year the total return is about the same from minus 1% to about plus 6% . the 30 year shows little change from about 7% all the way out if this chart is correct.
not sure if it is answering the question though fully but it does show not much change over certain rate changes vs price changes at times and at other times coupon rate does have more effect .

Image
Yes, I've seen that chart before. And that's why I am pointing out that the comments you're making, basically that the total return will be the same regardless of beginning coupon rate, is incorrect. That chart shows that the total return of a bond in a changing interest rate environment, or bond fund which will behave similarly (especially for longer dated bonds) is GREATLY dependent on beginning interest rate, with the coupon being the main driver in high yield environments and price moves due to duration/convexity being the driver in low yield environments.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 6:17 am

true but it also does not show much difference depending on bond maturity vs coupon rate at times as well.

just look at that 30 year , how there is very little change from 7-8% to 15%.

1989 shows the 10 year at about 7%

There is little difference on the chart between 4% coupon and 7% as it appears …certainly not to make much difference in the the over 12% return that year on the bond index as far as todays result because coupons are 3-4%.

Meaning that if rates were hypothetically 3-4% back in 1989 under the same situation the total return would still be pretty close to the results with a 7% coupon rate and still in very positive territory

2005 shows the ten year at 4.59

That chart show there is little difference all the way down to 1% coupon rates shown in in total return
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sun Sep 04, 2022 7:37 am

mathjak107 wrote:
Sun Sep 04, 2022 6:17 am
true but it also does not show much difference depending on bond maturity vs coupon rate at times as well.

just look at that 30 year , how there is very little change from 7-8% to 15%.

1989 shows the 10 year at about 7%

There is little difference on the chart between 4% coupon and 7% as it appears …certainly not to make much difference in the the over 12% return that year on the bond index as far as todays result because coupons are 3-4%.

Meaning that if rates were hypothetically 3-4% back in 1989 under the same situation the total return would still be pretty close to the results with a 7% coupon rate and still in very positive territory

2005 shows the ten year at 4.59

That chart show there is little difference all the way down to 1% coupon rates shown in in total return
You're not understanding the chart correctly. First off, the chart is showing what happens if rates decline, not increase, like we were discussing earlier. Also, it's showing TOTAL RETURN, in the instance of a 1% drop. So, using your 1989 example: If there was no rate change, return would be 7% (the coupon rate). If there was a 1% decrease, return would be almost 15%. The 'very little change' you're talking about for 30 year, and the convergence of all the lines, simply means that the total return each year converges towards each other and towards the coupon rate as the coupon rate increases.

At any rate, I'm struggling to understand how this discussion applies to:
1. Whether people are sticking with LTT's?
2. My question in response to pointedstick's comments about whether there is much of a correlation between fed funds rate and LTT rates.
3. Why the information you posted in reference to item 2 is irrelevant to the discussion because it is total return of intermediate bonds, and not at all related to interest rate correlation or even LTT's at all. It's just extraneous information that has practically zero benefit for anyone.
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 9:38 am

In this case we are looking at bond rates falling as short term rates increase over the last 40 years except for 1994 and as of now so it certainly applies to this discussion as pointed stick told us predicting rates when short term rates rise is easy and that is anything but the case .

So we are talking bond rates falling not rising as the fed raised rates if returns are higher .

In all cases both agg and treasuries showed the same link .that is for the ten and 30 year as well as those years the returns were higher as the fed raised short term rates more than 1%
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sun Sep 04, 2022 11:41 am

mathjak107 wrote:
Sun Sep 04, 2022 9:38 am
In this case we are looking at bond rates falling as short term rates increase over the last 40 years except for 1994 and as of now so it certainly applies to this discussion as pointed stick told us predicting rates when short term rates rise is easy and that is anything but the case .

So we are talking bond rates falling not rising as the fed raised rates if returns are higher .

In all cases both agg and treasuries showed the same link .that is for the ten and 30 year as well as those years the returns were higher as the fed raised short term rates more than 1%
But what you provided doesn't definitively prove the intermediate rates fell in every year except 1994. What about 2005/2006? I'd have to go look up what the rates were those years, but it looks likely to me that intermediate rates increased, given that those returns are pretty low compared to what I think the yields were at that time.

So, you provided a chart with data that only addresses the question at hand (and backs up your thesis) if you squint really hard and turn the page just the right way, and then it provides evidence of your thesis in 3 out of the 6 years you provided? This is called derailing a conversation. I agree that predicting long term rates from short term rates is not as easy as it seems, but there are much, much better ways to show it than a set of 6 data points using intermediate term bonds instead of the LTT's that were initially being discussed. If you don't have the data to make your point, don't show the data (and maybe don't even try to make your point).
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Re: Are most people here sticking with Treasuries?

Post by mathjak107 » Sun Sep 04, 2022 12:58 pm

That chart are the years the fed raised more then 1% in a year and only once the last 40 years until now Did bond total returns on 10 years or longer return negative returns that year .

So if one was predicting bond returns by fed inceases you would have been quite wrong most of those years.

That is all it is showing .
Pointed stick made it sound so obvious and easy but had he done it those years he would have been wrong .

That’s my only point
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Re: Are most people here sticking with Treasuries?

Post by dockinGA » Sun Sep 04, 2022 1:57 pm

mathjak107 wrote:
Sun Sep 04, 2022 12:58 pm
That chart are the years the fed raised more then 1% in a year and only once the last 40 years until now Did bond total returns on 10 years or longer return negative returns that year .

So if one was predicting bond returns by fed inceases you would have been quite wrong most of those years.

That is all it is showing .
Pointed stick made it sound so obvious and easy but had he done it those years he would have been wrong .

That’s my only point
The highlighted part above is the more correct way of phrasing it, leaving aside that the data you showed is for intermediate bonds, not '10 years or longer'. Your earlier comment said, flat out, that the VALUE of bonds increased (implying an actual drop in market yields), not that the bonds returned a positive amount for the year. These are two completely separate but interrelated things.
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