US Treasury to issue a 50-year bond

Discussion of the Bond portion of the Permanent Portfolio

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clacy
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US Treasury to issue a 50-year bond

Post by clacy » Thu Nov 14, 2019 1:35 pm

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Xan
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Re: US Treasury to issue a 50-year bond

Post by Xan » Thu Nov 14, 2019 2:43 pm

Not quite an announcement, so it isn't a done deal, but it sure seems close. Really I don't know why they wouldn't.

If this were to happen, what would be the PP ramifications? Should we phase into those bonds? I'm thinking the answer would be yes, because we want bonds with high volatility, and as rates are near zero, a longer duration bond would have more room for growth.
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Re: US Treasury to issue a 50-year bond

Post by dualstow » Thu Nov 14, 2019 2:49 pm

yes please
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jacksonm2
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Re: US Treasury to issue a 50-year bond

Post by jacksonm2 » Thu Nov 14, 2019 2:51 pm

That article said something about Trump saying we need to re-finance the debt. What the heck does that mean? Does that mean that current 30-year bonds will automatically be changed to 50 years?
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jhogue
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Re: US Treasury to issue a 50-year bond

Post by jhogue » Fri Nov 15, 2019 10:12 am

There is nothing magical about a 30 year maturity for Treasury bonds. Some municipalities and institutions (and countries) already sell 50 or 100 year bonds. Trump wants to introduce the sale of 50 year T-bonds to reduce financing costs for the federal government, especially for long term infrastructure projects like roads and airports.

Current 30 year T-bonds are not callable, so there is no possibility to “automatically” change them into 50 year bonds. Instead of buying a 30 year-T bond, holding it for 10 years and then selling it, a PP investor could buy a new 50 year T-bond and instead hold it for 30 years before selling it. As Xan suggests, this could be a gradual phase-in.

I think the sale of 50 year T-bonds ought to be a net plus for PP investors. Interest rates on 50 year T-bonds will almost certainly be greater than rates on 30 year T-bonds, so a 50 year bond will throw off more cash each year than the same denomination 30 year bond. But recall that you buy T bonds for their volatility, not their coupon. By definition, a 50 year T-bond will be more volatile than a 30 year T-bond and therefore more possibility of positive rebalancing. Lastly, you would not have to buy and sell your T bonds as frequently if you hold 50 year T-bonds, which should result in some net savings in bid/ask spreads.
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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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ochotona
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Re: US Treasury to issue a 50-year bond

Post by ochotona » Fri Nov 15, 2019 12:59 pm

BondtholeMEOW is frightened.

I don't see the point of owning something with a duration longer than your lifetime. I guess if you're young it's okay. In 30 or 35 years I'm gone anyway.
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Re: US Treasury to issue a 50-year bond

Post by vnatale » Fri Nov 15, 2019 3:16 pm

ochotona wrote:
Fri Nov 15, 2019 12:59 pm
BondtholeMEOW is frightened.

I don't see the point of owning something with a duration longer than your lifetime. I guess if you're young it's okay. In 30 or 35 years I'm gone anyway.
Is that any different than anything we own with an indeterminate life span, i.e., the houses that we own?

Vinny
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Re: US Treasury to issue a 50-year bond

Post by dualstow » Fri Nov 15, 2019 3:19 pm

vnatale wrote:
Fri Nov 15, 2019 3:16 pm
ochotona wrote:
Fri Nov 15, 2019 12:59 pm
...
I don't see the point of owning something with a duration longer than your lifetime. I guess if you're young it's okay. In 30 or 35 years I'm gone anyway.
Is that any different than anything we own with an indeterminate life span, i.e., the houses that we own?
I agree. It's nice to see some bonds come to maturity, but I will pass leftover bonds to my wife or heirs along with stocks.
If they provide protection while you're alive, that's good enough.
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ochotona
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Re: US Treasury to issue a 50-year bond

Post by ochotona » Fri Nov 15, 2019 3:29 pm

vnatale wrote:
Fri Nov 15, 2019 3:16 pm
ochotona wrote:
Fri Nov 15, 2019 12:59 pm
BondtholeMEOW is frightened.

I don't see the point of owning something with a duration longer than your lifetime. I guess if you're young it's okay. In 30 or 35 years I'm gone anyway.
Is that any different than anything we own with an indeterminate life span, i.e., the houses that we own?

Vinny
Houses are not marked-to-market in real time. But I guess Zillow, right? Also you can live in a house you can't live in a TBond ;D
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Re: US Treasury to issue a 50-year bond

Post by jhogue » Fri Nov 15, 2019 4:17 pm

ochotona wrote:
Fri Nov 15, 2019 12:59 pm
BondtholeMEOW is frightened.

I don't see the point of owning something with a duration longer than your lifetime. I guess if you're young it's okay. In 30 or 35 years I'm gone anyway.

Think again. How long do you think a $20 gold coin will last?
“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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