What to do with a Low-Yielding 30-Year Bond

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Maddy
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What to do with a Low-Yielding 30-Year Bond

Post by Maddy » Mon Feb 06, 2023 9:05 am

I bought my first 30-year bond a year or two ago, before all the interest rate hikes. The yield is 1.8%.

At the time I purchased this bond, 1.8% seemed like an acceptable return. Things look much different to me now that treasury money markets are paying 4.0% and additional interest rate hikes seem inevitable if the dollar is to retain its reserve currency status. Naturally I regret having this money tied up in a long-term bond.

I am not a sophisticated investor, so I would value the opinions of others here as to what I should do. It's hard for me to envision a situation in which this bond will recover the 1/3 of its value that it has lost, and I will not live long enough to see this bond mature. Accordingly I am tempted to sell this bond at a loss and put the money into short-term treasuries, or even VGIT. Or, heck, even trade it in for a new 30-year bond. Ideas?

Thank you in advance.
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Re: What to do with a Low-Yielding 30-Year Bond

Post by flyingpylon » Mon Feb 06, 2023 9:24 am

Here's what you do:

Read Tyler's excellent article on bond convexity!

High Profits at Low Rates: The Benefits of Bond Convexity

Read it multiple times if necessary, that's what I do.

It depends on the role long-term bonds play in your portfolio, but it may make you wonder if you should buy more now that they are "on sale".
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Maddy » Mon Feb 06, 2023 11:12 am

flyingpylon wrote:
Mon Feb 06, 2023 9:24 am

Read Tyler's excellent article on bond convexity!

High Profits at Low Rates: The Benefits of Bond Convexity

Read it multiple times if necessary, that's what I do.
What if I told you that a theoretical 30-year bond with a negative interest rate experiences double the profit of one with a 10% interest rate even if the change in rates is an identical -1%?

It’s absolutely true, and it’s due to something called bond convexity.
Looks like exactly the information I need! Thank you!
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Re: What to do with a Low-Yielding 30-Year Bond

Post by boglerdude » Mon Feb 06, 2023 6:51 pm

Sell it in the next manufactured crisis. Rate was 1.27% circa March 2020
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Maddy » Thu Jul 06, 2023 1:04 pm

Could we possibly revisit this question again?

I've now lost greater than one-third of the original value of my 1.8 percent bonds, and today's action (plummeting stock market coupled with plummeting LT bonds) gives me no reason to believe that long-term bonds have any remaining purpose in my portfolio. To the contrary, it seems to me that the government is on a course to effectively defaulting on its existing treasury obligations as it continues its attempt to lure new, ever more reluctant, buyers of treasuries by offering higher and higher rates.

I did read the piece about bond convexity, though I admit that much of it went over my head. What I did glean from the article is that even low-interest T-bonds have the redeeming feature of being ultra-sensitive to changes in interest rates.

I tried to apply that information to my situation, but the bottom line still seems clear to me: To even come close to breaking even, interest rates would have to make a dramatic return to rock-bottom levels--which seems hard to imagine.

Wouldn't it just be better to take my loss and put that money into i-bonds? What (reasonably plausible) scenario could make my 1.8 percent bonds worth hanging onto--keeping in mind that I won't live nearly long enough for them to reach maturity?
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Hal » Thu Jul 06, 2023 3:45 pm

Maddy wrote:
Thu Jul 06, 2023 1:04 pm
Could we possibly revisit this question again?
What (reasonably plausible) scenario could make my 1.8 percent bonds worth hanging onto--keeping in mind that I won't live nearly long enough for them to reach maturity?
Could you hedge your bond holdings with some gold? At the start of this video BelangP talks about how bonds performed poorly in the early 70's.
https://www.youtube.com/watch?v=K70aQh9ptpU
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Smith1776 » Thu Jul 06, 2023 5:41 pm

Don’t sell the bonds, do the opposite: rebalance into them.

Selling them after they’ve lost value is an unequivocal behavioural mistake. Rebalance and stay the course.
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Pet Hog » Fri Jul 07, 2023 3:05 pm

I'm in the same boat as Maddy. I bought 30-year treasuries in February 2021, yielding 1.875%. Today, each $1000 bond is worth about $640, and that $18.75 annual coupon isn't helping very much to make up for the 36% decline. Nevertheless, if I hold to maturity I'll get the $360 back over 27.5 years, which comes to about a 1.6% CAGR. And the $18.75 coupon on the now-$640 bond comes to about 2.9% annually. So I can expect about a 4.5% return going forward on my $640 bonds. So there's no point selling and buying new, similarly yielding, bonds (yield right now on a 30-year treasury bond is 4.05%).

The Fed just paused increasing the federal funds rate, with some hints that they'll raise it at most two more times, maybe to 5.5%. If you look at the last two decades' history of the federal funds rate (see below), pauses have been followed by massive and rapid declines, down to the 0-1% range. If something like that were to happen over the next 12 months -- and there is much anticipation of a recession later this year, predicted by the massively inverted yield curve -- then it might not be unreasonable for rates at the long end of the curve to decrease accordingly. If we go down to 2% on the 30-year treasury then my bonds would be worth close to $1000 again, and from $640 to $1000 that's a 55% increase. That's a mouthwatering prospect.

fredgraph.png
fredgraph.png (65.1 KiB) Viewed 15470 times

As such, like Smith1776 suggested, I'm likely to rebalance into LTTs very soon. I think the downside risk is low and the potential upside is huge.
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Fri Jul 07, 2023 3:22 pm

Pet Hog wrote:
Fri Jul 07, 2023 3:05 pm

I'm in the same boat as Maddy. I bought 30-year treasuries in February 2021, yielding 1.875%. Today, each $1000 bond is worth about $640, and that $18.75 annual coupon isn't helping very much to make up for the 36% decline. Nevertheless, if I hold to maturity I'll get the $360 back over 27.5 years, which comes to about a 1.6% CAGR. And the $18.75 coupon on the now-$640 bond comes to about 2.9% annually. So I can expect about a 4.5% return going forward on my $640 bonds. So there's no point selling and buying new, similarly yielding, bonds (yield right now on a 30-year treasury bond is 4.05%).

The Fed just paused increasing the federal funds rate, with some hints that they'll raise it at most two more times, maybe to 5.5%. If you look at the last two decades' history of the federal funds rate (see below), pauses have been followed by massive and rapid declines, down to the 0-1% range. If something like that were to happen over the next 12 months -- and there is much anticipation of a recession later this year, predicted by the massively inverted yield curve -- then it might not be unreasonable for rates at the long end of the curve to decrease accordingly. If we go down to 2% on the 30-year treasury then my bonds would be worth close to $1000 again, and from $640 to $1000 that's a 55% increase. That's a mouthwatering prospect.


fredgraph.png


As such, like Smith1776 suggested, I'm likely to rebalance into LTTs very soon. I think the downside risk is low and the potential upside is huge.


Please let us know when that day of "very soon" arrives for you! It may push me to similar action. Thanks!
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by barrett » Sat Jul 08, 2023 7:32 am

Maddy wrote:
Mon Feb 06, 2023 9:05 am
I bought my first 30-year bond a year or two ago, before all the interest rate hikes. The yield is 1.8%.

At the time I purchased this bond, 1.8% seemed like an acceptable return. Things look much different to me now that treasury money markets are paying 4.0% and additional interest rate hikes seem inevitable if the dollar is to retain its reserve currency status. Naturally I regret having this money tied up in a long-term bond.

I am not a sophisticated investor, so I would value the opinions of others here as to what I should do. It's hard for me to envision a situation in which this bond will recover the 1/3 of its value that it has lost, and I will not live long enough to see this bond mature. Accordingly I am tempted to sell this bond at a loss and put the money into short-term treasuries, or even VGIT. Or, heck, even trade it in for a new 30-year bond. Ideas?

Thank you in advance.
Maddy, just so we are all talking about the same thing, it seems to me from your initial post that you only bought *one* 30-year bond. Am I reading that right? If so, your percentage loss is a lot but the total number of dollars lost is not. If it really is just one bond that's causing you angst, I would just sell it.
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Maddy » Sun Jul 09, 2023 5:56 am

Barrett,

I misspoke. Sorry. It's "bonds," plural, amounting to about $15K.

As an aside, the majority of my bond allocation is in Wellesley (VWIAX). Wellesley's managers, of course, are constantly churning their holdings, so in that sense I am getting some exposure to new, higher-yielding bonds even though I cannot stomach the thought of straight-out buying more LTTs. Although I'm similarly sick about the performance of VWIAX, at least with that fund I sense the possibility of recovery. I guess I'm a good example of someone who is not well suited for the 4x4 because it causes me too much angst.

I was listening to John Rubino last night. He makes a persuasive case that with level of debt that the U.S. has taken on, the Fed has no way out of the box it created during the last 12 years of artificially low rates. He posits that no matter which way the Fed goes with rates, one of two things will occur: (1) a deflationary depression coupled with a cascade of defaults that wipe out large swaths of the economy, or (2) expanded government bailouts funded by unprecedented printing. I'm not nearly smart enough to critique his analysis, but I do notice the absolute silence on the other side of the argument--i.e., the absence of rational voices laying out even a plausible roadmap for a return to normalcy.

I admit that my view of things is simplistic. But when I asked the question some 10 years ago, "Why is investing in the government any different than lending money to a spendthrift brother-in-law who has just maxed out his fifth credit card? The answer I got was, "The government can always print money." Well, that it can, as we've learned--but we're now seeing the consequences of doing so. If the price of recovery in the bond market is that we get our money back in vastly depreciated dollars, what kind of investment is that?
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 1:08 pm

Maddy wrote:
Sun Jul 09, 2023 5:56 am

Barrett,

I misspoke. Sorry. It's "bonds," plural, amounting to about $15K.

As an aside, the majority of my bond allocation is in Wellesley (VWIAX). Wellesley's managers, of course, are constantly churning their holdings, so in that sense I am getting some exposure to new, higher-yielding bonds even though I cannot stomach the thought of straight-out buying more LTTs. Although I'm similarly sick about the performance of VWIAX, at least with that fund I sense the possibility of recovery. I guess I'm a good example of someone who is not well suited for the 4x4 because it causes me too much angst.

I was listening to John Rubino last night. He makes a persuasive case that with level of debt that the U.S. has taken on, the Fed has no way out of the box it created during the last 12 years of artificially low rates. He posits that no matter which way the Fed goes with rates, one of two things will occur: (1) a deflationary depression coupled with a cascade of defaults that wipe out large swaths of the economy, or (2) expanded government bailouts funded by unprecedented printing. I'm not nearly smart enough to critique his analysis, but I do notice the absolute silence on the other side of the argument--i.e., the absence of rational voices laying out even a plausible roadmap for a return to normalcy.

I admit that my view of things is simplistic. But when I asked the question some 10 years ago, "Why is investing in the government any different than lending money to a spendthrift brother-in-law who has just maxed out his fifth credit card? The answer I got was, "The government can always print money." Well, that it can, as we've learned--but we're now seeing the consequences of doing so. If the price of recovery in the bond market is that we get our money back in vastly depreciated dollars, what kind of investment is that?


You ask some good questions, which I cannot answer.

I do believe that you have announced to all in this forum that you are done with The Permanent Portfolio? If so, then you are not constrained by its prescriptions particularly the one regarding keeping 25% of your portfolio in long-term (>19 year treasuries).

If you are, however, still interested in bonds and, including treasuries, then this (even though 7 years old) is a good place to start to make an informed decision:

https://www.whitecoatinvestor.com/high- ... ernatives/

"Critically, your riskless assets should retain their value in a crisis. Corporate bonds, in particular, have a modest amount of stock-like behavior and can see price falls independent of the rise or fall in overall interest rates. Municipal bonds can also behave this way, and if you're depending on either corporates or munis for liquidity during a crisis–precisely when you're likely to want or need it the most–you may have to take a substantial haircut to realize it. Tax-sheltered investors should keep almost all of their fixed-income assets in government guaranteed securities: Treasury bills, and notes and CDs. And while taxable investors should own at least some municipal bonds, they should still hold a fair dollop of Treasuries and CDs as well….At present, very low rates might make you consider using….Short term [bonds rather than intermediate bonds.]"

" In a crisis, a liquid, high-quality bond is very helpful to the overall portfolio. Not only does it give you an asset that is liquid in case you need to live on it, but it is also an asset that has likely risen in value. In 2008, even Vanguard's relatively high quality intermediate corporate bonds lost 6.1%. But the intermediate treasuries were up 13.5%. Since a crisis is the time to sell bonds and buy stocks, you're a lot better off selling bonds that have appreciated, rather than bonds that have depreciated less than your stocks in order to buy more stocks. This effect may overcome the effect of the higher long-term returns of lower quality bonds on your portfolio, resulting in higher overall portfolio returns, which is what really matters.

The recommendation for short term bonds is simply because they are far less volatile and retain their value much better in an environment of rising interest rates. That wasn't the case in 2008, but would have been in 1973-74 when both stocks and bonds underperformed cash."
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 1:39 pm

Here is a view from 3 years ago regarding holding what you own:

https://www.morningstar.com/bonds/long-bonds-are-fools

Long Bonds Are for Fools
The investment hope is to sell them to greater fools.


John Rekenthaler
Apr 23, 2020

"Asset Inflation? Investment managers speak quietly rather than loudly about the possibility that today's asset prices have been inflated by the actions of central banks. That thesis is generally associated with the Austrian school of economics, which isn't a mainstream belief. Also, the contention is very difficult to verify because one cannot directly track money's movements. The conclusions are suppositions.

However, that which resists proof also resists disproof. One cannot state with certainty that the many trillions of dollars (and other currencies) created by the globe’s central banks have not led to unintended consequences. Perhaps all that cash has pushed asset prices above what they otherwise would be. Perhaps that process will continue."
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 1:45 pm

Here is his updated view from last year (two years later):

https://www.morningstar.com/economy/are ... till-fools

Are Long Bonds Still for Fools?
Re-evaluating the prospects for 30-Year Treasuries.


John Rekenthaler
Jul 18, 2022

"A Cloudy Forecast
The lesson seems clear: Unless 3% Treasury yields presage an unexpected increase in inflation, as was the case in 1943, they will not necessarily hurt an investor’s long-term returns. But neither do they help. There have only been two stretches in modern U.S. history where 3% yields were profitable. The first came during the Eisenhower administration, and the second in the 2010s.

That makes sense. A 3% yield can provide a positive real return over a full decade only if: 1) inflation stays consistently low or 2) Treasury payouts decline further, so that they end the decade much lower than where they commenced. As mentioned above, the first outcome has occurred only twice. The latter has never happened. Not once have Treasury yields finished a 10-year period significantly below where they started, when beginning at a 3% rate.



In short, while history does not suggest that 3% yields will sink Treasury-bond investors, neither is it complementary. Even if today’s high inflation rates are temporary, as most economists claim (the public firmly disagrees), the outlook for long Treasury bonds is uninspiring. And, should inflation persist, thereby further surprising the already surprised economists, long bonds will continue to slump."


"In short, I remain unenthusiastic about long Treasuries. No longer do I believe that they should attract only central banks that must stockpile reserves, or traders who plan to flip them to greater fools. When long bonds pay 3%, they can deliver an acceptable, if unexciting, return while protecting a portfolio’s equities against inflation—although not stagflation. But the alternatives remain more attractive. Cash is the safer path for reducing a portfolio’s risk, while equities are preferable for increasing its return.'
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 2:40 pm

Now the author's current thoughts (from this year):

https://www.morningstar.com/bonds/long- ... nger-fools

Long Bonds Are No Longer for Fools
Prospects have improved for 30-year Treasuries.


John Rekenthaler
Apr 13, 2023

Wrapping Up
In recent years, I have advocated that investors use cash or short-term notes instead of long bonds to diversify their equities (along with alternative investments). That includes an article from last summer, which acknowledged the surge in long Treasury yields but panned them nevertheless. Their payoffs were still too low, I argued, and inflation was raging.

Since then, yields have risen further, while inflation, although still uncomfortably high, appears to be receding. That combination compels me to release long Treasuries from their penalty box.

Would I buy them myself? Probably not. I am optimistic enough about the Federal Reserve’s resolve to believe that a 3.6% yield will make for a small positive real return, but not so optimistic as to bet my future on that event. Thirty years is an awfully long time to be locked into a below-market yield, should that prove to be the case.

But for the first time in several years, one can at least make an argument for long Treasuries. That is a welcome change.
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 3:00 pm

Your original question revolves upon what to do with your low-yielding 30-year bonds which you are presumably using for income in retirement?

Analysis of certain alternatives from the same author I have been quoting:

https://www.morningstar.com/bonds/retir ... -annuities

The Best Current Sources of Retirement Income
Treasury bonds, TIPS ladders, or annuities? None are perfect, but each can be useful.


John Rekenthaler
Jun 22, 2023

"Conclusion
For retirees who do not live unusually long, Treasury bonds are superior if inflation is low to moderate, and TIPS ladders are strongest if inflation is high. For those who postpone their meetings with the Grim Reaper, annuities are the soundest overall bet. To be sure, they are vulnerable to high inflation, but (because their payout rates are higher) less so than with fixed-rate bonds.

In short, depending upon circumstances, each of the three retirement-income options could prove the best or worst investment choice. It seems prudent, therefore, to diversify among each. How to make such a decision, of course, is an entirely different topic—a matter for another column."
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 3:07 pm

This is someone else's take on the prior article:

https://www.mymoneyblog.com/treasury-bo ... tg=9627344

Treasury Bonds vs. TIPS vs. Lifetime Income Annuities Compared
JUNE 25, 2023 BY JONATHAN PING


"My lightning recap:

Moderate inflation (2.4%) + Average Lifespan: Mostly a tie.
High inflation (5%) + Average Lifespan: TIPS win.
Low inflation (1%) + Average Lifespan: Treasury bonds win.
Moderate inflation + Extended Lifespan: SPIA lifetime annuity wins.

Since we don’t know the future, there is no “best” option. However, this comparison helps you understand why you’d own each option. If everything goes as forecasted, it won’t really matter what you pick. But I bother with owning all three types because I like knowing that I am covered in all of the more extreme scenarios. I don’t plan on buying a lot of private annuities, however, as Social Security is already an annuity that offers lifetime inflation-adjusted income. If needed, I plan to simply delay my Social Security claim date if I wish to increase my annuity allocation."
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 4:20 pm

Getting back to what you brought up in your last paragraph ....this article somewhat touches upon it.

https://www.advisorperspectives.com/art ... retirement

Playing Inflation Russian Roulette in Retirement
by William Bernstein, 11/29/22

"The choice between the TIPS ladder and annuity + side account strategies is a classic Pascal’s wager; “losing” in a low-inflation environment with the former by missing out on a slightly longer stream of income might be painful, but “losing” with the latter in a high-inflation environment could prove devastating.

What are the odds of such an inflationary scenario? One is reminded of Nassim Taleb’s dictum that “this so-called worst-case event, when it happened, exceeded the worst case at the time.” In other words, 5.4% long-term inflation is nowhere near the worst-case scenario. Even a casual glance at the global history of fiat money in the twentieth century shows that hyperinflation is the rule, not the exception. During the above-mentioned 1966-1995 period, U.S. debt/GDP averaged around 50%; now, it’s more twice that level and rising rapidly, and given the hundreds of trillions of dollars of additional implicit debt (promises to Social Security and Medicare, and to backstop future emergencies – think military aid to Ukraine and weather or terrorism disaster relief) it won’t take much to tip things over into a debt spiral, especially if the Treasury has to roll its debt over at higher interest rates for very long.

I have no idea what the odds of such a future inflationary scenario are, but it’s a good bet that, given the cruel mistress of economic history and burgeoning explicit and implicit debt, those odds are well above zero.

The risk of blowing your brains out playing Russian Roulette are one in six, which I submit are a conservative estimate of the probability of significant future inflation, so why play retirement Russian Roulette with a nominal annuity or, for that matter, with long-term nominal bonds of any sort?

Moreover, nominal annuities also carry credit risk, which is not trivial; insurance company salesmen are fond of pointing out that none failed in 2007-2009, and that in any case they are backed by state guarantees. But in 2022, U.S. fiscal strength is not what it used to be, and in a real crunch, the state guarantees will not even be a speed bump on the way to widespread insurance company defaults.

I’ll give the closing words to the erstwhile Mr. Roth, who phrased his skepticism of annuities as follows: “Actuaries are very smart people, and if they aren’t willing to take the inflation risk, I don’t recommend my clients take it either.”"
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."
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Re: What to do with a Low-Yielding 30-Year Bond

Post by Dieter » Sun Jul 09, 2023 4:40 pm

vnatale wrote:
Sun Jul 09, 2023 3:07 pm
This is someone else's take on the prior article:

https://www.mymoneyblog.com/treasury-bo ... tg=9627344

Treasury Bonds vs. TIPS vs. Lifetime Income Annuities Compared
JUNE 25, 2023 BY JONATHAN PING


"My lightning recap:

Moderate inflation (2.4%) + Average Lifespan: Mostly a tie.
High inflation (5%) + Average Lifespan: TIPS win.
Low inflation (1%) + Average Lifespan: Treasury bonds win.
Moderate inflation + Extended Lifespan: SPIA lifetime annuity wins.

Since we don’t know the future, there is no “best” option. However, this comparison helps you understand why you’d own each option. If everything goes as forecasted, it won’t really matter what you pick. But I bother with owning all three types because I like knowing that I am covered in all of the more extreme scenarios. I don’t plan on buying a lot of private annuities, however, as Social Security is already an annuity that offers lifetime inflation-adjusted income. If needed, I plan to simply delay my Social Security claim date if I wish to increase my annuity allocation."
Thanks. Interesting article.

Although I'd be interested in the "Which is least bad in its sub-optimal environments"

Seems to be TIPS

If looking at these assets in isolation, which of course we don't do here ;D :) :) :)
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 4:49 pm

Dieter wrote:
Sun Jul 09, 2023 4:40 pm

vnatale wrote:
Sun Jul 09, 2023 3:07 pm

This is someone else's take on the prior article:

https://www.mymoneyblog.com/treasury-bo ... tg=9627344

Treasury Bonds vs. TIPS vs. Lifetime Income Annuities Compared
JUNE 25, 2023 BY JONATHAN PING


"My lightning recap:

Moderate inflation (2.4%) + Average Lifespan: Mostly a tie.
High inflation (5%) + Average Lifespan: TIPS win.
Low inflation (1%) + Average Lifespan: Treasury bonds win.
Moderate inflation + Extended Lifespan: SPIA lifetime annuity wins.

Since we don’t know the future, there is no “best” option. However, this comparison helps you understand why you’d own each option. If everything goes as forecasted, it won’t really matter what you pick. But I bother with owning all three types because I like knowing that I am covered in all of the more extreme scenarios. I don’t plan on buying a lot of private annuities, however, as Social Security is already an annuity that offers lifetime inflation-adjusted income. If needed, I plan to simply delay my Social Security claim date if I wish to increase my annuity allocation."


Thanks. Interesting article.

Although I'd be interested in the "Which is least bad in its sub-optimal environments"

Seems to be TIPS

If looking at these assets in isolation, which of course we don't do here ;D :) :) :)


Of course our own Tyler has his own detailed analysis of tips: https://portfoliocharts.com/2022/09/27/ ... ectations/

ALL ABOUT TIPS: REAL RETURNS AND INFLATED EXPECTATIONS
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 4:52 pm

Dieter wrote:
Sun Jul 09, 2023 4:40 pm

vnatale wrote:
Sun Jul 09, 2023 3:07 pm

This is someone else's take on the prior article:

https://www.mymoneyblog.com/treasury-bo ... tg=9627344

Treasury Bonds vs. TIPS vs. Lifetime Income Annuities Compared
JUNE 25, 2023 BY JONATHAN PING


"My lightning recap:

Moderate inflation (2.4%) + Average Lifespan: Mostly a tie.
High inflation (5%) + Average Lifespan: TIPS win.
Low inflation (1%) + Average Lifespan: Treasury bonds win.
Moderate inflation + Extended Lifespan: SPIA lifetime annuity wins.

Since we don’t know the future, there is no “best” option. However, this comparison helps you understand why you’d own each option. If everything goes as forecasted, it won’t really matter what you pick. But I bother with owning all three types because I like knowing that I am covered in all of the more extreme scenarios. I don’t plan on buying a lot of private annuities, however, as Social Security is already an annuity that offers lifetime inflation-adjusted income. If needed, I plan to simply delay my Social Security claim date if I wish to increase my annuity allocation."


Thanks. Interesting article.

Although I'd be interested in the "Which is least bad in its sub-optimal environments"

Seems to be TIPS

If looking at these assets in isolation, which of course we don't do here ;D :) :) :)


Also here in Bogleheads: https://www.bogleheads.org/forum/viewtopic.php?t=388845

Is an epic (and counting) 392 post discussion on Alan Roth's describing how to create a 30 year 4% withdrawal TIPS ladder.
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Re: What to do with a Low-Yielding 30-Year Bond

Post by boglerdude » Sun Jul 09, 2023 7:14 pm

Savings glut. Rich 1st world and slow population growth. What is anyone you lend money to (bonds) going to do for a riskless return. Wouldnt be crazy to underweight bonds. That said 30 year's at 4% and at some point will be back to 1%
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Re: What to do with a Low-Yielding 30-Year Bond

Post by vnatale » Sun Jul 09, 2023 7:50 pm

boglerdude wrote:
Sun Jul 09, 2023 7:14 pm

Savings glut. Rich 1st world and slow population growth. What is anyone you lend money to (bonds) going to do for a riskless return. Wouldnt be crazy to underweight bonds. That said 30 year's at 4% and at some point will be back to 1%


You CAN get a real return of 4% for the next 30 years. After then....
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Re: What to do with a Low-Yielding 30-Year Bond

Post by boglerdude » Sun Jul 09, 2023 10:55 pm

Housing and medical inflation are prob 8%. Is there any advantage to having high inflation and high interest eg Argentina with 110% inflation and 97% interest rate. I suppose its just mismanagement but wondering if there are any benefits
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Re: What to do with a Low-Yielding 30-Year Bond

Post by barrett » Mon Jul 10, 2023 6:12 am

Maddy wrote:
Sun Jul 09, 2023 5:56 am
Barrett,

I misspoke. Sorry. It's "bonds," plural, amounting to about $15K.

As an aside, the majority of my bond allocation is in Wellesley (VWIAX). Wellesley's managers, of course, are constantly churning their holdings, so in that sense I am getting some exposure to new, higher-yielding bonds even though I cannot stomach the thought of straight-out buying more LTTs. Although I'm similarly sick about the performance of VWIAX, at least with that fund I sense the possibility of recovery. I guess I'm a good example of someone who is not well suited for the 4x4 because it causes me too much angst.
I also came to the conclusion a few years ago that I wasn't cut out for the PP allocation. I just wasn't comfortable holding three volatile assets (and, yes, I realize that's kind of the point with the PP). So I haven't held long bonds since 2017 or so.

Maddy, are your long bonds in a taxable account? Just wondering if there might be a tax-loss harvesting opportunity which can sometimes be the best way out if an investment is causing angst. And you also point out that most of the bonds you are holding are in VWIAX which I see has a duration of 7 years. So that gives you some deflation protection but not necessary the flight-to-safety feature of US Treasuries.

I have no idea what percentage of your total portfolio those 30-years bonds are, but sometimes it's just best for one's mental state to move on. Good luck with whatever you decide.
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