6¼ % long bond

[dualstow]

I was revisiting Harry Browne's radio show archives this morning and selected the 04-11-14.mp3 file at random.
That's November 14, 2004.

At 27:15, Greg from Portland asks, "I know you currently recommend the 6¼% treasury bond of 2030 ... I know a person shouldn't try to time the market, but wouldn't it be advisable to hold off buying the 6¼% bond?"

I'll keep this in mind every time I think about tinkering.

[Ad Orientem]

[MediumTex]

Interest rates back then were so low, they really had nowhere to go but up.

Everyone thought that was pretty obvious.

[Bean]

Interest rates back then were so low, they really had nowhere to go but up.

Everyone thought that was pretty obvious.

Makes me wonder, is there a scenario where we could have a deflationary long bond?  Not just in real terms, but in rate.

[ns2]

Interest rates back then were so low, they really had nowhere to go but up.

Everyone thought that was pretty obvious.

Makes me wonder, is there a scenario where we could have a deflationary long bond?  Not just in real terms, but in rate.

Yeah, I wonder about that too. You would think that surely there would be a rate that was so low it had nowhere to go but up, but if we're not there yet, who knows?

[MediumTex]

Interest rates back then were so low, they really had nowhere to go but up.

Everyone thought that was pretty obvious.

Makes me wonder, is there a scenario where we could have a deflationary long bond?  Not just in real terms, but in rate.

Yeah, I wonder about that too. You would think that surely there would be a rate that was so low it had nowhere to go but up, but if we're not there yet, who knows?

Remember that the closer you get to zero, the harder it gets to push rates down further, which is part of the reason that you get such dramatic price moves in long term bonds at very low interest rates.  If rates fell from 2.80% to 1.90%, it would generate huge long bond gains.  Similarly, a rate move in the other direction will generate large losses.

Just visualize a tennis court turning into a ping pong table.  As the court gets smaller, so do the rackets and the balls, but if anything the action gets more intense.

[dragoncar]

Makes me wonder, is there a scenario where we could have a deflationary long bond?  Not just in real terms, but in rate.

Yeah, I wonder about that too. You would think that surely there would be a rate that was so low it had nowhere to go but up, but if we're not there yet, who knows?

Remember that the closer you get to zero, the harder it gets to push rates down further, which is part of the reason that you get such dramatic price moves in long term bonds at very low interest rates.  If rates fell from 2.80% to 1.90%, it would generate huge long bond gains.  Similarly, a rate move in the other direction will generate large losses.

Just visualize a tennis court turning into a ping pong table.  As the court gets smaller, so do the rackets and the balls, but if anything the action gets more intense.

What is this, a tennis court for ants???

[Bean]

What is this, a tennis court for ants???

Needs to be at least... three times bigger than this!

[Tortoise]

What is this, a tennis court for ants???

Needs to be at least... three times bigger than this!

For those who haven't had the pleasure of seeing Zoolander (start watching at 1:00):

http://www.youtube.com/watch?v=NQ-8IuUkJJc