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

[sophie]

FWIW...I've been struggling with a similar problem. I know intellectually that when the stock market tanks, long bonds will shoot up due to a "flight to safety". The problem is...I'm not sure that's happening anymore. That whole idea depended on the US being the sole world reserve currency, which is now arguable.

What about something along the lines of the "Desert Portfolio", with stocks, gold, and a pile of laddered medium term treasuries? Although, the 10% gold in the Desert Portfolio isn't enough to protect against a serious inflation/stagflation economy, which is what we've been in for the past year or two, but maybe just enough to soften the blow is good enough for you (I know you've been hesitant about gold in the past). In other words, there are only restricted time periods when long bonds are going to do well, and maybe it's not worth holding them just for that.

Maddy - if you want to switch to a Desert Portfolio-like structure (30% stocks, 10% gold except I'd recommend closer to 20%, and the rest in a 10 year Treasury ladder), you'd be fine over the long run and it might be much simpler to deal with. Alternatively, consider a fund like Wellesley or a target date fund for most of your holdings, complementing it with gold (10-20% of the amount in the fund) and of course cash, either a similar percentage or simply a fixed amount like 5 years of basic living costs. That might be better yet, because you won't be so upset if the Feds go back to cutting rates and T bill yields drop back to zero.

Definitely make that decision before dumping your long bonds, then stick with it - you don't want to be constantly tinkering with the portfolio because that risks the buy-high, sell-low trap that can kill your returns. Once you've made your new plan, then sure....dump those bonds and enjoy the tax loss.

[whatchamacallit]

https://www.ishares.com/us/products/239 ... y-bond-etf


I chickened out on long bonds after holding a small time this year without losing anything thankfully and replaced them with the GOVT etf.

It holds treasuries from 1 to 30 years based on market cap so it would hold more long bonds if that is what the Treasury was selling.

It ends up being like an intermediate Treasury fund in performance but it makes me sleep better having some 30 year treasuries in there.

Standard deviation and max drawdown end up being a little lower but cagr is also lower compared to long bond pp historically.

[Hal]

Good advice from Sophie IMHO....

Maddy - if you want to switch to a Desert Portfolio-like structure (30% stocks, 10% gold except I'd recommend closer to 20%, and the rest in a 10 year Treasury ladder), you'd be fine over the long run and it might be much simpler to deal with. Alternatively, consider a fund like Wellesley or a target date fund for most of your holdings, complementing it with gold (10-20% of the amount in the fund) and of course cash, either a similar percentage or simply a fixed amount like 5 years of basic living costs. That might be better yet, because you won't be so upset if the Feds go back to cutting rates and T bill yields drop back to zero.

and maybe head over to the Idiosyncraticwhisk website if you are considering replacing Bonds with Cash....

Edit: Hals allocation pondering below 60/40 LCV/Cash and 17% Gold

[Pet Hog]

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!

Today "very soon" arrived. I bit the bullet and partially rebalanced from gold/cash to LLTs. The bonds I bought at $1000 in February 2021 (now 27.5 years remaining) are currently worth less than $600 each (40% loss, wow). This morning the yield on the 30-year treasury bond was above 4.4%. My LTTs have gone down something like 8% this month, and gold by about 4%, so I figured on a relative basis it still made sense to sell gold and buy LTTs. In my PP, LTTs were at 19.4% and gold at 28.1%, so from a 30/20 bands perspective it also made sense to rebalance. My yield to maturity at the time of buying was 4.46% (I added to that 27.5-years-to-maturity holding). I received a coupon payment a couple of days ago, so that also prompted me into action (very little accrued interest to buy). I know yields could go up further with yesterday's announcement of possible further federal funds rate rises (plural), but I'm happy with 4.46% going forward. The 30-year now has the highest yield since I started my PP in May 2013. My LTT yield is so high that if I invested 100% of my PP into LLTs I would earn enough to cover my living expense at a very frugal level. I guess that means I'm out of the accumulation zone. Today's rebalance was only partial: LTTs now at 22.1%, gold at 25.6%, stocks at 27.1%, and cash at 25.2%. I have a 401k contribution to make later this year and I'm planning to complete the rebalance then.

[vnatale]

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!

Today "very soon" arrived. I bit the bullet and partially rebalanced from gold/cash to LLTs. The bonds I bought at $1000 in February 2021 (now 27.5 years remaining) are currently worth less than $600 each (40% loss, wow). This morning the yield on the 30-year treasury bond was above 4.4%. My LTTs have gone down something like 8% this month, and gold by about 4%, so I figured on a relative basis it still made sense to sell gold and buy LTTs. In my PP, LTTs were at 19.4% and gold at 28.1%, so from a 30/20 bands perspective it also made sense to rebalance. My yield to maturity at the time of buying was 4.46% (I added to that 27.5-years-to-maturity holding). I received a coupon payment a couple of days ago, so that also prompted me into action (very little accrued interest to buy). I know yields could go up further with yesterday's announcement of possible further federal funds rate rises (plural), but I'm happy with 4.46% going forward. The 30-year now has the highest yield since I started my PP in May 2013. My LTT yield is so high that if I invested 100% of my PP into LLTs I would earn enough to cover my living expense at a very frugal level. I guess that means I'm out of the accumulation zone. Today's rebalance was only partial: LTTs now at 22.1%, gold at 25.6%, stocks at 27.1%, and cash at 25.2%. I have a 401k contribution to make later this year and I'm planning to complete the rebalance then.

1) Many thanks for informing us of this momentous event in your life.

2) You did not buy TIPS, correct? If so, are you covered only if the average inflation rate during the 30 years is less than your yield? Or?

[Pet Hog]

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!

Today "very soon" arrived. I bit the bullet and partially rebalanced from gold/cash to LLTs. The bonds I bought at $1000 in February 2021 (now 27.5 years remaining) are currently worth less than $600 each (40% loss, wow). This morning the yield on the 30-year treasury bond was above 4.4%. My LTTs have gone down something like 8% this month, and gold by about 4%, so I figured on a relative basis it still made sense to sell gold and buy LTTs. In my PP, LTTs were at 19.4% and gold at 28.1%, so from a 30/20 bands perspective it also made sense to rebalance. My yield to maturity at the time of buying was 4.46% (I added to that 27.5-years-to-maturity holding). I received a coupon payment a couple of days ago, so that also prompted me into action (very little accrued interest to buy). I know yields could go up further with yesterday's announcement of possible further federal funds rate rises (plural), but I'm happy with 4.46% going forward. The 30-year now has the highest yield since I started my PP in May 2013. My LTT yield is so high that if I invested 100% of my PP into LLTs I would earn enough to cover my living expense at a very frugal level. I guess that means I'm out of the accumulation zone. Today's rebalance was only partial: LTTs now at 22.1%, gold at 25.6%, stocks at 27.1%, and cash at 25.2%. I have a 401k contribution to make later this year and I'm planning to complete the rebalance then.

1) Many thanks for informing us of this momentous event in your life.

2) You did not buy TIPS, correct? If so, are you covered only if the average inflation rate during the 30 years is less than your yield? Or?

Thanks, Vinny. Very true, just regular US treasuries. No inflation protection, but I'm hoping the PP provides me with a positive real return going forward.

[Pet Hog]

Today "very soon" arrived. I bit the bullet and partially rebalanced from gold/cash to LLTs. The bonds I bought at $1000 in February 2021 (now 27.5 years remaining) are currently worth less than $600 each (40% loss, wow). This morning the yield on the 30-year treasury bond was above 4.4%. My LTTs have gone down something like 8% this month, and gold by about 4%, so I figured on a relative basis it still made sense to sell gold and buy LTTs. In my PP, LTTs were at 19.4% and gold at 28.1%, so from a 30/20 bands perspective it also made sense to rebalance. My yield to maturity at the time of buying was 4.46% (I added to that 27.5-years-to-maturity holding). I received a coupon payment a couple of days ago, so that also prompted me into action (very little accrued interest to buy). I know yields could go up further with yesterday's announcement of possible further federal funds rate rises (plural), but I'm happy with 4.46% going forward. The 30-year now has the highest yield since I started my PP in May 2013. My LTT yield is so high that if I invested 100% of my PP into LLTs I would earn enough to cover my living expense at a very frugal level. I guess that means I'm out of the accumulation zone. Today's rebalance was only partial: LTTs now at 22.1%, gold at 25.6%, stocks at 27.1%, and cash at 25.2%. I have a 401k contribution to make later this year and I'm planning to complete the rebalance then.

Yesterday I finished my rebalance. Added to my 27.5- and 29.5-year bonds in about equal dollar amounts. The former were trading at about $545 per bond and the latter around $805. They have been terrible investments, initially bought at auction for around $1000 each. The yields to maturity for both are now approximately 4.9%. I rebalanced out of stocks and gold.

With LTTs and STTs each yielding about 5% and stocks yielding about 1.5%, the PP is now yielding [(5 + 5 + 1.5)/4] about 2.9%. That's a decent foundation for (hopefully) nominal gains in the next few years. For a 4% safe withdrawal rate, capital appreciation would now have to be only 1.1%, ignoring inflation. A couple of years ago when LTTs were yielding less than 2% and STTs were near zero, the PP's yield was maybe 0.9%.