The 30 year bond is yielding 4.58% right now. I believe this is the highest it has been since the beginning of the year (give or take a few basis points) and I predict that it will go no higher in 2011 and that it will probably fall substantially.
My reasons for this prediction are many and each one has a pretty involved explanation, but I see many catalysts for yields to drop substantially.
No change to my PP, of course, but right now the 30 year bond looks like an amazing opportunity.
The 30 Year Yield Has Hit Its 2011 High
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The 30 Year Yield Has Hit Its 2011 High
Q: “Do you have funny shaped balloons?”
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Re: The 30 Year Yield Has Hit Its 2011 High
Yep, I see how my EDV position shrank since July when I finalized my transition into PP. However the rebalacing band hasn't been hit yet. And there could also be further drops when the interest rates start heading up. But for anybody who hasn't established their LT position yet this is a good time.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
- Talmud
Re: The 30 Year Yield Has Hit Its 2011 High
MT,
I agree with you. Do you have a VP where you put some $ behind your idea?
I agree with you. Do you have a VP where you put some $ behind your idea?
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
I don't like to cloud my crystal ball with the emotions of fear and greed, so I place no wagers on my predictions.moda0306 wrote: MT,
I agree with you. Do you have a VP where you put some $ behind your idea?
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
You truly know how to use the English language as it's meant to be used.
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
MT,
I'm assuming, then, that you are 100% PP, even with money you "can afford to lose?"
I can't disagree with that strategy. It simply works that well.
I'm assuming, then, that you are 100% PP, even with money you "can afford to lose?"
I can't disagree with that strategy. It simply works that well.
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
I can't afford to lose any money, so I'm 100% PP.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
I just struck a rebalance band a few days ago (by virtue of flushing away a bunch of sub-par 401(k) funds when it rolled into an IRA.) This rebalance had me heavily buying into LT bonds so this is all music to my ears.
Looking forward to seeing how this one shakes out.
Looking forward to seeing how this one shakes out.
Re: The 30 Year Yield Has Hit Its 2011 High
MT,
Do you see yields lowering in general, or just treasuries due to increased default risk of other bonds? The idea that we could end up in a Japan-type deflation/disinflation intrigues me.
Can you imagine LT treasuries selling for less than 2% 30-year yield? (Rhetorical) That'd be insane. Plus, some "bond vigilantes" would have some explaining to do as to how that happened.
Do you see yields lowering in general, or just treasuries due to increased default risk of other bonds? The idea that we could end up in a Japan-type deflation/disinflation intrigues me.
Can you imagine LT treasuries selling for less than 2% 30-year yield? (Rhetorical) That'd be insane. Plus, some "bond vigilantes" would have some explaining to do as to how that happened.
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
In the next few years I think LT yields will probably bottom around 2.3%.
In the nearer term I see the following catalysts for lower rates:
1. flight to quality due to state and local government insolvency fears
2. flight to quality due to foreign government insolvency fears
3. if mortgage rates do not come back down, housing will go back in the tank, which will pull the whole economy down with it
4. continued secular bear market for stocks will mean bond market doesn't have to offer high rates to lure capital
5. unfavorable U.S. demographics are structurally deflationary, which places downward pressure on yields
6. historically steep yield curve at current levels and no reason to think short term rates will move off of zero
7. Bernanke's own words to the effect that QE is all about pushing down rates
8. speculation in bond market involving sale of short end to buy long end and pocket spread
9. no inflation due to macroeconomic overcapacity and zero upward pressure on wages
10. baby boomers moving savings into bond market as they enter retirement years and seek income (note what they did to the stock market when they moved into it seeking capital appreciation in the 1980s and 1990s)
Just some stuff to think about.
In the nearer term I see the following catalysts for lower rates:
1. flight to quality due to state and local government insolvency fears
2. flight to quality due to foreign government insolvency fears
3. if mortgage rates do not come back down, housing will go back in the tank, which will pull the whole economy down with it
4. continued secular bear market for stocks will mean bond market doesn't have to offer high rates to lure capital
5. unfavorable U.S. demographics are structurally deflationary, which places downward pressure on yields
6. historically steep yield curve at current levels and no reason to think short term rates will move off of zero
7. Bernanke's own words to the effect that QE is all about pushing down rates
8. speculation in bond market involving sale of short end to buy long end and pocket spread
9. no inflation due to macroeconomic overcapacity and zero upward pressure on wages
10. baby boomers moving savings into bond market as they enter retirement years and seek income (note what they did to the stock market when they moved into it seeking capital appreciation in the 1980s and 1990s)
Just some stuff to think about.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
Funny.... old retired people: the people least in need of deflationary protection (don't have a job to loose, and are in a pure consumption phase of their life) buy the best deflationary protection (treasuries). They're extremely exposed to inflation and fiscal problems relating to social security, but won't touch gold with a 40-foot pole.
Generalities of course.
Generalities of course.
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
Picture an enormous herd of buffalo stampeding off the edge of a cliff with a group of Goldman Sachs partners dressed up as Indians on horseback driving the herd from the rear.moda0306 wrote: Funny.... old retired people: the people least in need of deflationary protection (don't have a job to loose, and are in a pure consumption phase of their life) buy the best deflationary protection (treasuries). They're extremely exposed to inflation and fiscal problems relating to social security, but won't touch gold with a 40-foot pole.
Generalities of course.
(As a bit of trivia, all of the horses they will be riding will be named either "Tim" or "Ben".)
That's going to be the picture of baby boomers in retirement.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
I recently read that it's been estimated that the baby boomers control over 80% of personal financial assets and more than 50% of discretionary spending power. After seeing that statistic, it also occurred to me that the bull markets of the 1980s and 1990s were largely due to baby boomer demographics (among other things). I can't help but wonder what the stock market will look like when baby boomers move towards bonds. No one ever seems to talk about that — except maybe here on this forum.MediumTex wrote:10. baby boomers moving savings into bond market as they enter retirement years and seek income (note what they did to the stock market when they moved into it seeking capital appreciation in the 1980s and 1990s)
Last edited by Gumby on Fri Jan 21, 2011 7:13 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Re: The 30 Year Yield Has Hit Its 2011 High
Given that U.S. Treasurys are not widely held by individual U.S. investors, it seems like a large chunk of the U.S. population moving into retirement would be an obvious potential source of new demand for U.S. debt, which could put huge downward pressure on interest rates if this theme started to really get traction.Gumby wrote: I recently read that it's been estimated that the baby boomers control over 80% of personal financial assets and more than 50% of discretionary spending power. After seeing that statistic, it also occurred to me that the bull markets of the 1980s and 1990s were largely due to baby boomer demographics (among other things). I can't help but wonder what the stock market will look like when baby boomers move towards bonds. No one ever seems to talk about that — except maybe here on this forum.
Think about how yields got so low in Japan--in part it was because the people of Japan created strong demand for them and wanted the safety of government debt.
Right now, average people are frequently not well acquainted with the treasury market. If they buy bonds, it is usually through a fund, and the fund is rarely treasurys-only.
But that can change.
I was watching a 1940s-era film one time on video and it had one of those newsreels at the front of it. At the bottom of the newsreel I saw an ad for War Bonds. Guess where it said you could buy them? At the concession stand in the movie theater!
The world can change in ways no one would have imagined before. I can easily see treasurys being everyone's favorite investment in a few years.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
Here's a good way to play the lottery: pick your numbers and then don't buy a lottery ticket. If your numbers don't hit you just won a dollar.Desert wrote:I'm in the same situation! I actually advised two friends (who wanted to bet on a bowl game) to bet on Stanford in the bowl game, because I was sure they'd win. The two guys did just that, and both won about $200. Me? I've never bet on a game in my life, and never will. I probably won't ever have a VP either, unless I can finally afford some farm land.MediumTex wrote: I can't afford to lose any money, so I'm 100% PP.
Using my method, if your numbers do hit your losses are huge (but the odds are very much on your side that this won't happen).
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
And with Japan, they have a large aging population, so that's a very good point. It's very strange to see the financial services industry pushing the same old mantra of stocks early, bonds later. Generation X,Y and Z could very well get burned by listening to that advice. When you consider that the baby boomers control most of the financial wealth, Generation X,Y and Z could easily follow that advice into an abyss when baby boomers move into bonds.MediumTex wrote:Given that U.S. Treasurys are not widely held by individual U.S. investors, it seems like a large chunk of the U.S. population moving into retirement would be an obvious potential source of new demand for U.S. debt, which could put huge downward pressure on interest rates if this theme started to really get traction.
Think about how yields got so low in Japan--in part it was because the people of Japan created strong demand for them and wanted the safety of government debt.
Last edited by Gumby on Sat Jan 22, 2011 9:03 am, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Re: The 30 Year Yield Has Hit Its 2011 High
I think MT is right on the money with this long-term prediction. One thing I have noticed is that (and I don't mean to politicize this conversation) the media has been drumming up a lot of fear about the insolvency of the US government. If you watch cable news you might hear at least daily some fear-based piece about the coming debt crisis of the US, or the inevitable insolvency. This seems to resonate with retail investors and I've heard people say things like "I don't want to invest in the US treasury, look how high the deficit is" and other uneducated nonsense like that, when I discuss the PP with them. Those are usually the two main objections I hear "gold is in a bubble right now and will probably crash" or "the US is almost bankrupt, why would you buy bonds?"
In my opinion, it will take another stock market panic or flight to safety to reverse the yield trend. You are completely right about long-term interest rates. The whole intention of QE2 was to push the yield down and lower mortgage rates to try and juice the housing recovery. Since QE2 started, the trend has actually been in reverse. I think this means QE3/4 are inevitable unless a euro debt crisis triggers another flight to safety and pushes the yields down like what we saw in 2008.
Another scary statistic I heard recently - first week in January - one of the only times in history there was absolutely zero insider buying at S&P500 companies. It was all insider selling. What does that tell you about the confidence level of CXO level positions in major corporations that the stock market will continue rising?
Link to the article on zero insider buying: http://www.zerohedge.com/article/inside ... prior-week
In my opinion, it will take another stock market panic or flight to safety to reverse the yield trend. You are completely right about long-term interest rates. The whole intention of QE2 was to push the yield down and lower mortgage rates to try and juice the housing recovery. Since QE2 started, the trend has actually been in reverse. I think this means QE3/4 are inevitable unless a euro debt crisis triggers another flight to safety and pushes the yields down like what we saw in 2008.
Another scary statistic I heard recently - first week in January - one of the only times in history there was absolutely zero insider buying at S&P500 companies. It was all insider selling. What does that tell you about the confidence level of CXO level positions in major corporations that the stock market will continue rising?
Link to the article on zero insider buying: http://www.zerohedge.com/article/inside ... prior-week
Last edited by Storm on Sat Jan 22, 2011 10:38 am, edited 1 time in total.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
Re: The 30 Year Yield Has Hit Its 2011 High
That statement does not strike me as "uneducated nonsense" but rather simply viewing an asset in isolation. Without the protection of gold, I would agree that it's extremely risky to invest in long-term treasuries. With such instruments there's always real danger of "soft default" via inflation. (Short-term treasuries are very safe, on the other hand.)Storm wrote: I've heard people say things like "I don't want to invest in the US treasury, look how high the deficit is" and other uneducated nonsense like that, when I discuss the PP with them.
While viewing an asset in isolation is a "bad thing", it's a really hard thing to stop doing! Even some very sharp Bogleheads can get caught up doing that.
Re: The 30 Year Yield Has Hit Its 2011 High
An excellent point. There is no way I would ever consider loaning sizable sums of money to the Treasury without a large gold component as a hedge. Before I found the PP I was already buying gold, but I sure wasn't looking at 30 year Treasuries. It took some time for me to warm up to that part of the portfolio.Lone Wolf wrote: ...
Without the protection of gold, I would agree that it's extremely risky to invest in long-term treasuries. With such instruments there's always real danger of "soft default" via inflation. (Short-term treasuries are very safe, on the other hand.)
While viewing an asset in isolation is a "bad thing", it's a really hard thing to stop doing! Even some very sharp Bogleheads can get caught up doing that.
"Machines are gonna fail...and the system's gonna fail"
Re: The 30 Year Yield Has Hit Its 2011 High
Clive,
If you look at the US PP in 1981 that's what happened, to some degree. Gold had rallied for years, but Volker had decided to drastically raise rates to stop inflation. So LT bonds, stocks, and gold all got hit. ST rates were the savior in that year, and it's one of the examples of cash being an important piece of the portfolio.
Luckily, the PP came out of it and Craig's version only suffered a 3.9% loss that year, and had double-digit years surrounding it.
I do see, maybe in 1 year, what you say as the only possible achilles heel of the PP. But I don't see it lasting more than a year. These correlations are based on very basic macroeconomic principals that are almost impossible to have break down.
I think some people give the fed a little too much credit. They can manipulate rates to some degree, but rates also have to comply witht he investing public's view on inflation and the strength of the dollar. For instance, if the fed chose, today, to drastically raise rates, and stocks would justifiably fall drastically, would the investing public also demand those rates in such a disinflation/deflation environment? I'm sure people would be more than happy to earn a very low interest rate (except maybe for all the default risk that would now be a part of peoples' interest rate pricing) while the fed is meanwhile charging banks a fortune. Likewise, if the fed had significantly lowered rates in the early 80's instead of raising them, it would have caused high enough inflation where nobody would accept low rates of return on their cash. So the fed can only raise/lower rates within a band of reasonable assumptions about the future of default & inflation. That's all my general opinion/perception, anway, but it's at the very least a very interesting/pertinent discussion as the PP operates on the principals that interest rates are subject to at least some market forces,a nd not completely at the fed's whim.
If you look at the US PP in 1981 that's what happened, to some degree. Gold had rallied for years, but Volker had decided to drastically raise rates to stop inflation. So LT bonds, stocks, and gold all got hit. ST rates were the savior in that year, and it's one of the examples of cash being an important piece of the portfolio.
Luckily, the PP came out of it and Craig's version only suffered a 3.9% loss that year, and had double-digit years surrounding it.
I do see, maybe in 1 year, what you say as the only possible achilles heel of the PP. But I don't see it lasting more than a year. These correlations are based on very basic macroeconomic principals that are almost impossible to have break down.
I think some people give the fed a little too much credit. They can manipulate rates to some degree, but rates also have to comply witht he investing public's view on inflation and the strength of the dollar. For instance, if the fed chose, today, to drastically raise rates, and stocks would justifiably fall drastically, would the investing public also demand those rates in such a disinflation/deflation environment? I'm sure people would be more than happy to earn a very low interest rate (except maybe for all the default risk that would now be a part of peoples' interest rate pricing) while the fed is meanwhile charging banks a fortune. Likewise, if the fed had significantly lowered rates in the early 80's instead of raising them, it would have caused high enough inflation where nobody would accept low rates of return on their cash. So the fed can only raise/lower rates within a band of reasonable assumptions about the future of default & inflation. That's all my general opinion/perception, anway, but it's at the very least a very interesting/pertinent discussion as the PP operates on the principals that interest rates are subject to at least some market forces,a nd not completely at the fed's whim.
"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
- Thomas Paine
Re: The 30 Year Yield Has Hit Its 2011 High
This speculation about bonds brings us back to HB's Cardinal rule, namely that the future is unknowable and therefore, whether bonds rise or fall, the PP can and will protect us from the potential pitfalls. This philosophy is very liberating.
Re: The 30 Year Yield Has Hit Its 2011 High
30 year treasury is yielding 4.47% right now.
That was quick.
The bond market must have been checking in on this thread.
That was quick.
The bond market must have been checking in on this thread.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
4.62% today 10:40am
Faber & Mish both look for the yield to take another step up yet from here. Just saying. Could be a good week to dive in to PP w/ IAU & TLT.
Faber & Mish both look for the yield to take another step up yet from here. Just saying. Could be a good week to dive in to PP w/ IAU & TLT.
Re: The 30 Year Yield Has Hit Its 2011 High
That's true. LT treasurys and gold have both dipped pretty nicely lately.Plumbline wrote: 4.62% today 10:40am
Faber & Mish both look for the yield to take another step up yet from here. Just saying. Could be a good week to dive in to PP w/ IAU & TLT.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: The 30 Year Yield Has Hit Its 2011 High
i am in the middle of a re-balance/move further into the pp, i hope it holds till i get it done....
-Government 2020+ - a BANANA REPUBLIC - if you can keep it
-Belief is the death of intelligence. As soon as one believes a doctrine of any sort, or assumes certitude, one stops thinking about that aspect of existence
-Belief is the death of intelligence. As soon as one believes a doctrine of any sort, or assumes certitude, one stops thinking about that aspect of existence