TLT - Why Is Income from Govt Obligations so LOW?

Discussion of the Bond portion of the Permanent Portfolio

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moda0306
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by moda0306 » Tue Feb 28, 2012 11:05 am

Ready for a PP sh!tstorm? 

http://quote.morningstar.com/fund-filin ... ffc3b9e09c

Go to page 36 of this attachment and pay attention, under the “assets”? section to the 3rd column, on the line that says  “Investments in securities, at fair value (including securities on loan).

That FMV of the assets in the fund comes to about $3.9 Billion.

So then go down to the (a) note, and it will tell you what the iShares 20+ Year fund’s share of securities on loan is, and (wait for it)…

$1.07 Billion.  That’s right, about ¼ of the securities are on loan.  So you’re not borrowing that portion to the government… you’re borrowing them to a private leveraging operation.

How do you like that?

Then on page 39 they show the income… which is a little harder to track and securities lending income is not that high.

This is all “year ended February 28, 2011”? by the way, so things could have changed, but this at-least gives you a pretty good idea of what TLT is: A wall street machination that pays 3% interest for 30 years and holds a decent chunk of similar instruments from the US treasury.

I’ll also add that it appears that there is another counterparty involved even in collecting the treasury interest. 

At this point I'd still call i-shares, but it'll probably take forever to get to an answer
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by alvinroast » Tue Feb 28, 2012 12:33 pm

I'm still awaiting more info on this, but meanwhile I'm feeling pretty good about my emphasis on EDV for the bond portion of PP. 8)

At least with the gold portion I can buy coins (or bars) and bury them in the backyard, but in light of MF Global I'm really concerned about all the counterparty risk with stocks and bonds.
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by dualstow » Tue Feb 28, 2012 12:35 pm

I guess moda has covered it, but I wrote to iShares when I first saw this thread.
The email reply just came in:
Thanks for contacting us about iShares ETFs. The reason you are seeing these numbers is because of securities lending activities within the fund. However we will not lend securities unless it was net benefit to the shareholder.

If you have any questions regarding this inquiry, please contact us at 1-800-iShares (1-800-474-2737) Monday through Friday, 8:30 a.m. to 6:30 p.m. (EST) and we will be happy to assist you. Thank you again for contacting iShares and have a great day!
You may have some 30-year treasury interest as of Saturday. Vanguard’s transaction history is finally showing it, too.
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by moda0306 » Tue Feb 28, 2012 12:44 pm

dualstow,

50% securities lending income, though?  That seems incredibly high.  I don't understand their claim about it being "to the benefit of the shareholder."

People don't invest in treasury bond funds only to have those bonds lent out out to other entities for money on the side.  Even if we did, shouldn't we have some considerably higher returns in the fund then the bonds themselves could have given us (by "considerably," I mean 1-3%?).  I'm sorry but I don't want HALF of my bonds used in some Wall Street scheme for only .5% interest at the end of the year.

Their line of thinking is beyond me, and it's starting to appear to be a lot less thinking and a lot more profiteering.  I'm not seeing the benefit come through that one would assume given a leveraging of 25% to 50% of the assets you are holding.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by stone » Tue Feb 28, 2012 12:51 pm

I don't see any point at all in treasury etfs unless you live in a country where the minimum holding for the bonds is too large for your use. In the UK we can own UK treasuries in as small increments as etfs so it seems bonkers to own a UK gilt etf especially as the UK gilt etfs have 50%  :o of the securities lent out.
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by moda0306 » Tue Feb 28, 2012 12:56 pm

stone,

It'd be one thing if one could get something with one layer of Vanguardesque counterparty risk, but these Wall Street machinations seem like a joke to me.

You are LITERALLY loaning your wealth to private companies, but getting paid as if you were loaning your money to the government.

W.T.F.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

- Thomas Paine
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by stone » Tue Feb 28, 2012 1:07 pm

moda you are not just loaning to any private company, you are loaning to hedgefunds shorting treasuries. They presumably include go-for-broke "break the fed" bond vigilante types. They regularly impale themselves on their own ignorance. I wouldn't want to be depending on them for anything.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by moda0306 » Tue Feb 28, 2012 1:13 pm

stone wrote: moda you are not just loaning to any private company, you are loaning to hedgefunds shorting treasuries. They presumably include go-for-broke "break the fed" bond vigilante types. They regularly impale themselves on their own ignorance. I wouldn't want to be depending on them for anything.
Exactly!!! 

Your goal: Own US Treasuries

In effect what your doing: Borrowing your wealth to private companies SHORTING treasuries and hope they pay you back what the treasuries would have via the terms of a contract.

I'm at a loss for words.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

- Thomas Paine
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by stone » Tue Feb 28, 2012 1:28 pm

I sometimes wonder whether it is as much about control as about actually getting income directly from the lending. The lending means that retail buying of TLT or whatever does not move the market. To move the market people have to buy bonds. Shorts get squeezed if lots of people buy bonds or stocks directly etc etc. I don't know to what extent Blackrock is connected with any major market participants anymore. Perhaps the amount invested in TLT is far too tiny to move the LTT market anyway ???
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by dualstow » Tue Feb 28, 2012 1:39 pm

moda, I have no argument with anything you wrote at the top of the page.
Over the past half year, I moved mostly out of TLT and into the real stuff, held in Fidelity.
I might have to complete that move this quarter.

But...I just set my dad up with pp that holds all its bonds in TLT.  :o It's a small pp compared to the total picture, but still.
You may have some 30-year treasury interest as of Saturday. Vanguard’s transaction history is finally showing it, too.
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by stone » Tue Feb 28, 2012 1:43 pm

dualstow, it probably still is fairly safe compared to pretty much everything else.
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Re: TLT - Why Is Income from Govt Obligations so LOW?

Post by moda0306 » Tue Feb 28, 2012 1:45 pm

dualstow,

Yeah if it sounded like I was lecturing you or trying to make a point against anything you said I wasn't... just typing in frustrated confusion.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

- Thomas Paine
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