Hoisington on why low rates can still go lower

[Kevin K.]

A really short article but these guys have an impressive track record.

Also of note are the absurdly high investment return expectations (IMHO) across the board shown in the graphic after the bond piece.

https://www.bloomberg.com/amp/opinion/a ... bout-rates

[Kriegsspiel]

I'm pretty fucking suspect when these finance people write articles for popular consumption.

Very glad I found out about the PP when I learned about investing.

[I Shrugged]

When Gary Shilling says the bond bull market is over, then I'll believe it's over.

[johnnywitt]

When Gary Shilling says the bond bull market is over, then I'll believe it's over.

That there is pretty funny Dude!

[boglerdude]

Shilling seems based. Not tooo clever and "shilling" to attract AUM. Or maybe I just like him because Im holding long bonds and want my views affirmed (imagine someone doing that? )

He says the world is deflationary outside of war. Tell that to Argentina...

[mathjak107]

aint nothing here deflating ...everything is going up in price to compensate for losses in business

[modeljc]

When Gary Shilling says the bond bull market is over, then I'll believe it's over.

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?

[Mark Leavy]

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?

Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking.

Mark

[modeljc]

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?

Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking.

Mark

I'm cheap. Keystone light. Trying to ask if long rates go to zero or maybe negtive meaning less than zero. LTTs are about 1.40%. Thats the upside potential. If Long rates were to go from 1.40% to 3% that is downside. Is that a little clearer?

[Mark Leavy]

I need a little help. Play like TLT yields zero. Then play like overnight TLT needs to yeild 3%. Need a sharpie to tell me the upside and the downside.

drank just one light beer! I get +34% upside and 45% downside. It's a call to get short duration?

Would you mind sharing the brand of that beer? It seems more potent than the one shot of rum I just had.
Your question sounds like it could be a fun one to try and answer, but unfortunately, I didn't understand it.
One of us must be lying about the amount we're drinking.

Mark

I'm cheap. Keystone light. Trying to ask if long rates go to zero or maybe negtive meaning less than zero. LTTs are about 1.40%. Thats the upside potential. If Long rates were to go from 1.40% to 3% that is downside. Is that a little clearer?

Ah... got it now. I'm guessing the standard approximation of multiplying duration (about 19 years) by the change in interest rate won't exactly hold up at these rates. I may try to run the real numbers this evening.

[Mark Leavy]

Okay modeljc. Here are the numbers I came up with. I'm open to any corrections.

Assuming current interest rates of 1.4% and assuming 25 years to maturity...

I calculate that:
An interest rate drop to 0% increases the bond price by 35%
An interest rate increase to 3% decreases the bond price by 28%.


I used this formula:

bondprice.png (80.9 KiB) Viewed 4357 times

You can see that there is less downside than upside in your example, even though we used a larger rate hike than rate drop.
Tyler has a great graph of this phenomena in his bond convexity post.

convexity-bond-fund-interest-rate-sensitivity-total-return.jpg (98.86 KiB) Viewed 4357 times

[modeljc]

Okay modeljc. Here are the numbers I came up with. I'm open to any corrections.

Assuming current interest rates of 1.4% and assuming 25 years to maturity...

I calculate that:
An interest rate drop to 0% increases the bond price by 35%
An interest rate increase to 3% decreases the bond price by 28%.


I used this formula:
bondprice.png


You can see that there is less downside than upside in your example, even though we used a larger rate hike than rate drop.
Tyler has a great graph of this phenomena in his bond convexity post.



convexity-bond-fund-interest-rate-sensitivity-total-return.jpg

WOW! I said I need a sharpie. Almost got upside right but missed the downside by a mile. Thanks so much. Thinking I can live with 17% in LTTs. But I will trim as necessary to keep them about 15%.