Realistic Expectations for Long Bonds

Discussion of the Bond portion of the Permanent Portfolio

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jhogue
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Re: Realistic Expectations for Long Bonds

Postby jhogue » Tue Apr 03, 2018 6:42 pm

Xan,

You won’t be buying short-term T-bills to replace your EE bonds with this strategy. Let us say you bought a $10,000 EE bond ten years ago. Checking moda’s chart, if today’s rate rose to over 6%, you should exercise your option to redeem your EE bond ($10,000 + 0.1% annual interest ) and then buy a ten year 6% Treasury note for $10,000 to get the same double-your-money effect (guaranteed $20,000 at 20 years).

Moda’s break-even interest rate curve begins to rise ever-more steeply after about ten years. What that means in effect is that you have to check current interest rates against your EE bonds for their first five to ten years more frequently. After ten years, it becomes increasingly unlikely that interest rates could rise high enough to trigger an EE bond redemption. As I stated, these new iteration EE bonds first available in 2005 now have just 7 years to reach their 20 year double-your-money mark (2025). You would not redeem them today unless you could find an offer of a 7 year Treasury with a yield to maturity of at least 8.19%.

Note that savings bonds belong in PP Cash, not PP Bonds, because they are not marketable and therefore do not have the volatility that Harry Browne wanted from LTTs. All of their appreciation comes from interest, not the interest + capital gains of LTTs. Used properly, however, they can give you a more profitable and robust Treasury barbell over time.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Xan
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Re: Realistic Expectations for Long Bonds

Postby Xan » Tue Apr 03, 2018 8:06 pm

Got it. That makes sense.
boglerdude
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Re: Realistic Expectations for Long Bonds

Postby boglerdude » Sun Apr 08, 2018 5:17 am

Deflationary Forces Will See 30-Year UST Going To 2%: Shilling
https://www.bloomberg.com/news/audio/20 ... g-jfo8f3p9

Shilling appears to have less of agenda than other pundits. Or maybe thats my confirmation bias, he makes me feel better about being a cowardly investor
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I Shrugged
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Re: Realistic Expectations for Long Bonds

Postby I Shrugged » Mon Apr 09, 2018 6:43 pm

Shilling has been right on bonds for something like 30 years. I have made good money by believing him, well before the PP.

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