Can Long-Term Bond Rates Go Any Lower?

Discussion of the Bond portion of the Permanent Portfolio

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vnatale
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Can Long-Term Bond Rates Go Any Lower?

Post by vnatale » Thu Sep 10, 2020 9:33 pm

Can Rates Go Any Lower?

Rates can go even lower than they are now. In some European and Asian nations, negative yields have prevailed for years.

https://www.kiplinger.com/article/inves ... lower.html

"The mystery of negative rates. Realize that rates can go far below where they are now. In some European and Asian nations, negative yields have prevailed for years. The trend was ignited when the European Central Bank cut its rate below zero as a stimulus to borrowing. In mid March, the yield on 10-year bonds issued by the government of Switzerland was minus 0.51%; Germany, –0.46%; Netherlands, –0.13%; Japan, –0.01%. In effect, the lender is paying the borrower for the favor of taking the lender’s money.

How does this work? You don’t send a check each half-year to the Deutsche Bundesbank. Instead, a bond is said to carry negative interest if the premium—that is, the amount you pay above face value—is greater than the interest you earn over the bond’s life.

These bonds are surprisingly popular. In August, global negative-yielding debt reached a milestone, exceeding $17 trillion, which is the amount that the U.S. Treasury owes to all its public creditors. Why not put your cash under the mattress and get ahead of the game by earning zero? Some bondholders are speculators who are betting they can profit when interest rates get even more negative. Others, including institutions with reserve requirements, keep government bonds on their balance sheets for safety.

The recent regime of super-low interest rates and moderate economic growth has been wonderful for both stocks and bonds. The danger for stocks is when “moderate” becomes “negative”—a growing possibility, and one that’s reflected in recent market volatility. For that same reason, I would be wary of corporate bonds, which add more risk with not much more reward.

Government bonds offer an excellent hedge against a serious slowdown or recession. If you really want to play it safe, then buy a bond fund whose maturities aren’t too extended, such as Fidelity Intermediate Treasury Bond Index (FUAMX), a mutual fund with an average maturity of six years and an expense ratio of just 0.03%. The fund’s returns are lower than those of long-term bond portfolios, but so is its risk.

We are in uncharted territory. We have never seen rates this low, and, although the benefits are obvious, the dangers are fraught. The low rates are trying to tell us something, and it’s not necessarily a pleasant story. Just remember when anyone says that rates can’t go lower … they can."
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
boglerdude
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by boglerdude » Fri Sep 11, 2020 12:52 am

Anybody looked at emerging market bonds as a diversifier?

https://www.bogleheads.org/forum/viewto ... 5#p4978295
johnnywitt
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by johnnywitt » Sat Sep 12, 2020 1:17 pm

Well, they've been asking this question for a very long time now and thus far, & for most Folks Lifetimes', the answer has been unequivocally affirmative and despite all forecasting to the contrary. Even most on here that are PP Diehards there exists extreme doubt as to the validity of the LTT portion of their PP. This, in itself, would be a reason to own them IMHO. When you own a PP you will always by definition hold something that is going to make you very uneasy. The thought that you can sleep at night and not worry about the Portfolio just isn't true IMO and something that HB got wrong in addition to the rebalancing dilemma one has to face buying more of the very same asset that is making one uneasy.
There's no free lunch I'm afraid. Hard enough to actually build wealth, but trying to keep it is equally as tenuous it would seem. I couldn't help but notice that even Anthony Dedan likes to drink a glass of Whisky.
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Kriegsspiel
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by Kriegsspiel » Sat Sep 12, 2020 5:45 pm

johnnywitt wrote:
Sat Sep 12, 2020 1:17 pm
I couldn't help but notice that even Anthony Dedan likes to drink a glass of Whisky.
Hmm?
You there, Ephialtes. May you live forever.
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by Kriegsspiel » Sat Sep 12, 2020 5:49 pm

Ah, never mind.
You there, Ephialtes. May you live forever.
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Smith1776
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by Smith1776 » Sat Sep 12, 2020 6:10 pm

My 2025 prediction is that LTT rates will be at negative 7%. ^-^ ^-^ ^-^ ^-^ ^-^ ^-^
I still find the James Rickards portfolio fascinating.
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by mathjak107 » Sat Sep 12, 2020 6:39 pm

[quote=Smith1776 post_id=205649 time=1599952232 user_id=2796]
My 2025 prediction is that LTT rates will be at negative 7%. ^-^ ^-^ ^-^ ^-^ ^-^ ^-^
[/quote]

I will go with long term rates around 3% . Hopefully not any higher than that
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Re: Can Long-Term Bond Rates Go Any Lower?

Post by johnnywitt » Sun Sep 13, 2020 1:56 pm

Kriegsspiel wrote:
Sat Sep 12, 2020 5:49 pm
Ah, never mind.
Because even for one of the greatest Investing minds in the world, this shit is stressful. Doesn't matter what 'safe' portfolio you're in. The above discussion would be illustrative of this. Here we have pretty diehard PP adhererents that are speaking of eliminating one of the four asset classes in the PP. Look, during big epochal turnings like I suspect we are in now, you can expect at least one of the four asset classes to perform for utter shit. This is a long term portfolio. I could see how someone would maybe be more inclined to morph into Tyler's Portfolio in order to hold less Treasuries at this point, but then you have less gold, which is the direction most people seem to think this thing is headed toward. May as well flip a coin IMO.
THE Belangp Portfolio looks pretty good as well with 65% LCV and 35% Gold. You get the dividend income. Really to me at this point Tyler's GB Portfolio really has a lot going for it. Maybe ol' HB would approve with what's going down with LTT and NIRP & ZIRP, which is something that I'm not sure he could have envisioned. My guess is that the PP comes through ok though. Maybe the key tenet to remember is the diversification factor, the package as it were. Salvation through true diversification. I don't know though- I'm just a dumb human trying to navigate a treacherous environment in thick fog and I for one am scared. Anybody in their right mind that has any clue of history would do well to be fearful about right now. Maybe our portfolios might not even matter in a few months to year.
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