A Picture of a Bond Bear

[MachineGhost]

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1942-1981: -.42% CAR, -37.75% MaxDD[/align]

I was going to say "three terrifying waves" in honor of Nostradamus (in 1564) predicting the destruction of Earth in three terrifying waves according to First Wave, but that would be confusing science fiction with reality!

[clacy]

I like that picture.  We need volatility with LTT's and there were plenty of big up moves within that bear.

[D1984]

MG, is the bond price and yield data used to draw that chart taken from the 30-year, the 20-year, the 10-year, or just a generic "long-term government bond index"? Also, if they are 30 or 20 year bonds, where did the data for those come from; I have never seen 30-year data from before 1961 or 20-year data from before 1953?

[MachineGhost]

MG, is the bond price and yield data used to draw that chart taken from the 30-year, the 20-year, the 10-year, or just a generic "long-term government bond index"? Also, if they are 30 or 20 year bonds, where did the data for those come from; I have never seen 30-year data from before 1961 or 20-year data from before 1953?

It's the 30-year total return Treasury bond, but the data cannot be redistributed nor do I know where it originated from.  I can tell you though it does not match up with FRED's 30-year CMT very well, so I suspect it is an average of some kind even though it is at the daily granularity.

The sad fact is that cash outperformed bonds during the bond bear.  I don't know if that is enough to modify the duration of the PP's bonds because it hedges the stocks.  I'll have to do some additional backtesting when I get a chance.

[D1984]

MG, is the bond price and yield data used to draw that chart taken from the 30-year, the 20-year, the 10-year, or just a generic "long-term government bond index"? Also, if they are 30 or 20 year bonds, where did the data for those come from; I have never seen 30-year data from before 1961 or 20-year data from before 1953?

It's the 30-year total return Treasury bond, but the data cannot be redistributed nor do I know where it originated from.  I can tell you though it does not match up with FRED's 30-year CMT very well, so I suspect it is an average of some kind even though it is at the daily granularity.

The sad fact is that cash outperformed bonds during the bond bear.  I don't know if that is enough to modify the duration of the PP's bonds because it hedges the stocks.  I'll have to do some additional backtesting when I get a chance.

Thanks for the info (BTW which software did you use to make that graph....is it Excel, Metastock, or something else?). I do wonder, though, why can't the data be redistributed....is it under copyright or something? If that's the case, how is that even possible if we don't know who created the data in the first place and where it originated from? If we don't know who they are in the first place then there's no one to object if the data were to somehow find its way onto Rapidshare or the like, if you get my drift....

I'm not surprised that in the early years the data wouldn't be precisely for a 30-year maturity bond because from around 1943 to early 1953 there were no 30-year Treasury bonds; the longest maturity bond that existed during that timeframe was due in 1972 but callable in 1967. The Fed did publish weekly yield data for "all bonds with a maturity of 15 years or greater" from 1941 to 1952 and for "all bonds with a maturity of 10 years or greater" from 1952 to 1970; prices and total returns can be extrapolated from yield so maybe that's where the early data comes from (although that would only be weekly granularity and you said it was daily).

[MachineGhost]

Thanks for the info (BTW which software did you use to make that graph....is it Excel, Metastock, or something else?). I do wonder, though, why can't the data be redistributed....is it under copyright or something? If that's the case, how is that even possible if we don't know who created the data in the first place and where it originated from? If we don't know who they are in the first place then there's no one to object if the data were to somehow find its way onto Rapidshare or the like, if you get my drift....

I don't know where the data come from, but the company surely does and if its as unique as it looks, I won't be risking distributing it on the Internet.  It is copyrighted and a violation of the licensing agreement to export it for use it other than by the registered user. 

The graph is a screenshot from AmiBroker: http://www.amibroker.com/

I'm not surprised that in the early years the data wouldn't be precisely for a 30-year maturity bond because from around 1943 to early 1953 there were no 30-year Treasury bonds; the longest maturity bond that existed during that timeframe was due in 1972 but callable in 1967. The Fed did publish weekly yield data for "all bonds with a maturity of 15 years or greater" from 1941 to 1952 and for "all bonds with a maturity of 10 years or greater" from 1952 to 1970; prices and total returns can be extrapolated from yield so maybe that's where the early data comes from (although that would only be weekly granularity and you said it was daily).

Whoops!  It is the weekly 30-year Treasury yield.  I forgot I converted it to total return daily.   Obviously it just repeats the last number for every 5 days.  But the reason I don't think the data is very good is because the transition from this data to the 30-year CMT was larger than the difference between the 20-year CMT (which I use during backtesting to fill in the gap back to 1968).

[D1984]

I don't know where the data come from, but the company surely does and if its as unique as it looks, I won't be risking distributing it on the Internet.  It is copyrighted and a violation of the licensing agreement to export it for use it other than by the registered user. 

OK, but it had to come from somewhere. Things like that don't just appear on one's hard drive as if by magic. Is there anywhere it can legitimitely be bought from, then? Even if it wasn't copyrighted, don't bother posting it...since it's weekly and not truly daily (see below) I'm thinking it's Federal Reserve data anyhow which is not actually copyrighted. I myself have the Federal Reserve weekly yield from late 1941 (when the first fully taxable LTTs of the modern era were issued) until 12-12-1976...it's weekly and it's for long-term yields (not 30 year yields but since the longest term--until call or maturity--bond that existed from late 1941 to May 1953 was one callable in 1967 and maturing in 1972...well, again, there wasn't really a true 30-year bond to base a 30-year yield off of).

Whoops!  It is the weekly 30-year Treasury yield.  I forgot I converted it to total return daily.  Obviously it just repeats the last number for every 5 days.  But the reason I don't think the data is very good is because the transition from this data to the 30-year CMT was larger than the difference between the 20-year CMT (which I use during backtesting to fill in the gap back to 1968).

Well, that's to be expected given the nature of the data....see, the Fed didn't provide daily 20-year CMT yields (essentially a 20-year perpetuity yield constantly roleld over) until 1962. They did, however, provide the weekly yield--at least until December of 1976 or January of 1977--of a "long-term US government bonds" series. It was an equal weighted (i.e. not weighted by yield) average of all outstanding Treasury bonds as follows: From 1941 to the spring of 1952; this data was for all Treasury bonds with maturity or call dates of 15 years or greater in the future; from April 1952 to March 31st, 1953 it was for all bonds maturing or callable at least 12 years into the future (the reason they switched from 15 years to 12 years was because as of mid-1952 there basically were no issues remaining with at least 15 years to call or maturity....the "due in 1972; callable in 1967" bond issued in 1941 was the longest-term one left), from April 1st 1953 to December 31st, 1976, this data was for all bonds maturing or callable at least 10 years in the future. Since by the mid-70s this "at least 10 years in the future" qualification included a lot of bonds with maturity or call dates greater than 10 years remaining but less than 20 years (well, duh, since 10 years is less than 20) that probably accounts for the larger differential vs the 20-year CMT data.

Nevertheless, in the 40s, 50s, and early 60s I think there wouldn't have been that much difference from the CMT data (had it existed back that far) as far as maturity goes (except for maybe a year or two in the early 1950s when the bonds due or callable in the mid 1960s were the only game in town...this was in 1952-53 or thereabouts before the "callable in 1978; due in 1983" bond was issued in May 1953). Crudley calculated maturities for this series from 1942 to 1961 are as follows):

All Treasury bonds for 1942-1951 have at least 15 years to call or maturity; 1952, at least 12 years to call or maturity, and 1953-61; at least 10 years to call or maturity)

1942

3s of 1961 (issued 1911)
2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1967-1972 (issued October 1941)

21.40 yrs to call or maturity on average


1943

3s of 1961 (issued 1911)
2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1967-1972 (issued October 1941)

20.40 yrs to call or maturity on average


1944

3s of 1961 (issued 1911)
2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941)

20.00 yrs to call or maturity on average


1945

3s of 1961 (issued 1911)
2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

19.00 yrs to call or maturity on average


1946

3s of 1961 (issued 1911)
2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

18.00 yrs to call or maturity on average


1947

2.5s of 1962–1967 (issued 1942)
2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

17.50 yrs to call or maturity on average


1948

2.5s of 1963–1968 (issued 1942)
2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

17.00 yrs to call or maturity on average


1949

2.5s of 1964–1969 (issued 1943)
2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

16.50 yrs to call or maturity on average


1950

2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

16.00 yrs to call or maturity on average


1951

2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

16.00 yrs to call or maturity on average


1952

2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)

14.00 yrs to call or maturity on average


1953

2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)
3.25s of 1978–1983 (issued May 1953)

16.00 yrs to call or maturity on average


1954

2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)
3.25s of 1978–1983 (issued May 1953)

15.00 yrs to call or maturity on average

1955

2.5s of 1965–1970 (issued 1944)
2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)
3.25s of 1978–1983 (issued May 1953)
3s of 1995 (issued February 1955)

19.20 yrs to call or maturity on average


1956

2.5s of 1966–1971 (issued 1944)
2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)
3.25s of 1978–1983 (issued May 1953)
3s of 1995 (issued February 1955)

20.50 yrs to call or maturity on average


1957

2.5s of 1967-1972 (issued October 1941; reopened in September 1945 immediately after WWII ended)
4s of 1969 (issued October 1957)
3.25s of 1978–1983 (issued May 1953)
3s of 1995 (issued February 1955)

20.25 yrs to call or maturity on average


1958

4s of 1969 (issued October 1957)
3.88s of 1974 (issued December 1957)
3.25s of 1978–1983 (issued May 1953)
3.25s of 1985 (issued June 1958)
3.5s of 1990 (issued February 1958)
3s of 1995 (issued February 1955)

23.83 yrs to call or maturity on average


1959

4s of 1969 (issued October 1957)
3.88s of 1974 (issued December 1957)
3.25s of 1978–1983 (issued May 1953)
4s of 1980 (issued 1959)
3.25s of 1985 (issued June 1958)
3.5s of 1990 (issued February 1958)
3s of 1995 (issued February 1955)

22.57 yrs to call or maturity on average


1960

3.88s of 1974 (issued December 1957)
4.25s of 1975–1985 (issued 1960)
3.25s of 1978–1983 (issued May 1953)
4s of 1980 (issued 1959)
3.25s of 1985 (issued June 1958)
3.5s of 1990 (issued February 1958)
3s of 1995 (issued February 1955)

22.43 yrs to call or maturity on average


1961

3.88s of 1974 (issued December 1957)
4s of 1980 (issued 1959)
4.25s of 1975–1985 (issued 1960)
3.25s of 1978–1983 (issued 1953)
3.5s of 1980 (issued 1961)
3.25s of 1985 (issued June 1958)
3.5s of 1990 (issued February 1958; reopened 1961)
3s of 1995 (issued February 1955)
3.5s of 1998 (issued 1961)

22.89 yrs to call or maturity on average


The yields for this series are available in "Section 12: Money Rates And Securities Markets (1941-1970)" and the various Federal Reserve Bulletins from those same years. If you took all the weekly yields and simply held them at a 20-year constant maturity and used that to calculate price (and then added in yield to get total return) you'd probably have a pretty decent approximation of what a LTT bond index would have returned from 1942 to 1961.

JMO, of course.