can the 30 year bond stay at this (high) level

[stone]

Clive, in recent years that would have worked nicely because the London and New York markets were joined at the hip. You'd be taking a big risk that that didn't break down in the future. Holding Japanese stocks and US bonds in the 1990s would have been catastrophic. Who knows, in the coming years the UK might have a debt deflation whilst the USA has a stock boom or vice versa. Am I right that the 1920s were a boom in the USA and a depression in the UK? Perhaps if the quest is for less currency concentrated risk, a suplimentary variable portfolio of say 35% Yen cash, 35% USD LTT, 20% emerging market stocks, 10% silver might work as a supliment to a UK PP?

[murphy_p_t]

very interesting, Clive. does the interest rate go up after 1954? through that period, i think the british pound was linked to gold? if so, was that the main factor for those rates (ie. no fear of inflation)?

[murphy_p_t]

just throwing more wood on the fire...

anyone know of any flaws in the data presented here?

http://www.zerohedge.com/news/bill-gros ... nd-auction

"it means that it was the Fed, via the Primary Dealer repo mechanism that once again took down a whopping 60.9% of the entire auction."

61% !!!  this sounds like the US gov't moving money from the left pocket into the right pocket (with middlemen to get their cut)?

unsustainable bubble? Is there a point that the Fed/Treasury loses credibility?
http://www.ritholtz.com/blog/wp-content ... /08/41.gif

[moda0306]

MMT explosion in 5... 4... 3... 2...

Great addition, though.  I look forward to reading it.

[Gumby]

It's just fear mongering and political whining. ZeroHedge thinks it's some big embarrassment and conspiracy if only the Primary Dealers are doing most of the bidding (it's not). And Bill Gross is probably the last person you'd want to get Long Term Treasury advice on. Remember, he shorted LTTs last year before they jumped 35%.

Primary Dealers are obligated to have more than enough reserves on hand to take down the entire auction on their own. That's their job. That's what they sign up for. They become Primary Dealers mostly because they want to easily drain their excess cash reserves, and they also get special treatment for providing the service.

And with the Primary Dealers' help, today's Treasury auction was still oversubscribed 2.60:1

http://www.treasurydirect.gov/instit/an ... 0112_1.pdf
(See bid-to-cover in the bottom left-hand corner)

Not quite the 3:1 or 4:1 you usually see, but still a success. The Primary Dealers themselves tendered twice the amount necessary to take down the entire auction on their own. Also, ZeroHedge is being misleading since not all of the Direct and Indirect bids that were tendered were actually accepted. The Direct and Indirect bids alone could have taken more than 60% of the entire auction if their tendered bids had been accepted.

In any case, if the Primary Dealers are so incompetent that the Fed had to loan them the liquidity they need to independently take down the entire auction twice over (as ZeroHedge/Gross alleges) then the Fed did their job. LTTs took a 0.7% hit and recovered as soon as people got back from their coffee break.

Learn more, here:

When Will The Bond Auctions Begin to Fail?
Breaking News: "Bankrupt" Nation's Bond Auction 3x Oversubscribed

[craigr]

All I know is last year I ignored all of this stuff and my LT bonds went up over 30% from where they started in January. And I was getting interest payments the entire time.

So while all these people were running around worrying about various future scenarios (that didn't happen BTW) I was sitting back and making money. That's why we invest, right?

Ignore this stuff.

[moda0306]

craigr,

We like this stuff simply because of our interest in macroeconomics... I think we can mostly admit we're confident our PP will stay relatively safe even if we're wrong and we see troublesome inflation, high interest rates, or even a currency collapse.

I, for one, feel MMT is really onto something (descriptive... not perscriptive in all its forms), so whenever I hear reasonable challenges to it, I dig in... so does Gumby.  Don't interpret it as lack of confidence in the PP.

[dualstow]

Old thread here. 2011. The first page is worth reading.

[craigr]

I have been hearing since at least 2008 how LTT are horrible and nobody should own them. Instead people were advised to buy short-term bonds because interest rates would be going up "any day now." In fact, I have heard LTT bonds are horrible to own for probably 20 years if I think back far enough.

Over that time since 2008, people sitting in short-term bonds waiting for the inevitable interest rates rise have been earning near 0% nominal and well into negative real interest territory.

Even worse are the people who got out of the stock market entirely to sit in cash. They got badly burned.

Predicting the markets is a fool's errand. Your primary protection is wide diversification and mechanical rebalancing.

[ochotona]

I think in the short term long bonds are over-extended. On a Keltner Channel chart, they are tagging the 3 standard deviation line to the upside on a daily chart. I expect TLO or TLT to come down by 4%. Intermediate to long term, who knows?

[buddtholomew]

I think in the short term long bonds are over-extended. On a Keltner Channel chart, they are tagging the 3 standard deviation line to the upside on a daily chart. I expect TLO or TLT to come down by 4%. Intermediate to long term, who knows?

Is it actionable?
I revert back to doing the math and hardly seems worthwhile pursuing even if you are correct.

1M USD invested in TLT
4% loss = 40K USD

Let's say I take 20% off the table now or 200K

4% loss = 8K USD saved if you're correct.
8K on a 1M TLT investment= 0.8%
Hardly seems worthwhile at all.
This is why I completely gave up on market timing.
Risk/reward is too low.

[ochotona]

I think in the short term long bonds are over-extended. On a Keltner Channel chart, they are tagging the 3 standard deviation line to the upside on a daily chart. I expect TLO or TLT to come down by 4%. Intermediate to long term, who knows?

Is it actionable?
I revert back to doing the math and hardly seems worthwhile pursuing even if you are correct.

1M USD invested in TLT
4% loss = 40K USD

Let's say I take 20% off the table now or 200K

4% loss = 8K USD saved if you're correct.
8K on a 1M TLT investment= 0.8%
Hardly seems worthwhile at all.
This is why I completely gave up on market timing.
Risk/reward is too low.

Short-term price is something to consider for someone who has intentions to chase long Treasuries, patience could pay off.

[iwealth]

I think in the short term long bonds are over-extended. On a Keltner Channel chart, they are tagging the 3 standard deviation line to the upside on a daily chart. I expect TLO or TLT to come down by 4%. Intermediate to long term, who knows?

This is why I completely gave up on market timing.
Risk/reward is too low.

The risk/reward is huge. But what you are talking about is really just tinkering.

Expecting something to move 4% is sort of comical in itself. That's awfully precise. And then making a portfolio adjustment based on that expected paltry move to potentially save 0.8%? With LTTs at all time highs, it strikes me it wouldn't even be worth the tax implications.

Successful market timers get rich or broke placing much bigger bets on much bigger ideas.

[MachineGhost]

4% loss = 8K USD saved if you're correct.
8K on a 1M TLT investment= 0.8%
Hardly seems worthwhile at all.
This is why I completely gave up on market timing.
Risk/reward is too low.

Fading the trend risky. Going with trend not. It's at extreme points that you have to be careful so that you don't go all in at a top or sell all out at a bottom. It's at the in-between where trends change as opposed to at extreme points of mean reversion. But all potential trend changes start out as an extreme point mean reversion, but you don't know if it a forebearer of a trend change ahead of time unless you look at other variables besides just price and which have a historical record of actually working. Don't do this on gut feel.

[buddtholomew]

No matter how often I trim long-term treasuries, they continue to rise in value. Powerful little bugger...

These markets are truly remarkable to me. Just when you believe things are coming to a head, the balloon slowly deflates and the baseline is reset "new normal". As long as you own something this year you are experiencing the wealth effect with a rise in stocks, bonds and gold.

[Kbg]

I didn't notice this until last month when I was backtesting some PP variants But PP usually has an extremely good year following a bad year. It appears this year may continue that trend.