Gyroscopic Investing

UNITED STATES TREAS BDS 3.62500% 02/15/2044 0.61%
UNITED STATES TREAS BDS 2.75000% 08/15/2042 0.65%

This is the latest reading from my acct. I've noticed that the 2044 bond consistently moves less than the 2042 bond on a daily basis. How to explain? Why doesn't the longest date have greatest movement on a daily basis?

Mine do that too, it seems. Slightly shorter duration having  more extreme swings.

I know nothing about what's behind the movements of bond prices. I thought that maybe some entity just happened to buy a ton of the shorter one on the secondary market because they were more readily available, i.e. more people are holding on to the longer one. Of course, for every buyer there is a seller and in any case, it does not explain a consistent discrepancy. (shrug)

Maybe Rick B knows?

dualstow wrote: Mine do that too, it seems. Slightly shorter duration having  more extreme swings.

I know nothing about what's behind the movements of bond prices. I thought that maybe some entity just happened to buy a ton of the shorter one on the secondary market because they were more readily available, i.e. more people are holding on to the longer one. Of course, for every buyer there is a seller and in any case, it does not explain a consistent discrepancy. (shrug)

Maybe Rick B knows?

Sorry, no clue.

I'll take a crack at this.

The 28-year bond has a 2.75% coupon, vs 3.625% for the 30-year.

That means with the 28-year,  your money is tied up for a longer period because it's not being returned as quickly in coupon payments (higher duration).  The 30-year actually ties your money up less overall because it which gives your money back to you sooner via coupon payments (shorter duration.)


Does that make sense?

{nevermind}

Desert wrote: The important measure is duration rather than maturity.  Higher coupon payments reduce duration, and vice versa.  One thing we don't discuss a lot is the fact that 30 year treasuries of today have a much higher duration than in the old days of higher rates.  So the sensitivity to interest rates of our long bond allocation is higher than in HB's day.

things are very distorted right now as they always are in some way, however, bonds and gold had a decent correction last year and stocks have not so that sensitivity may serve us well.

Desert wrote: The important measure is duration rather than maturity.  Higher coupon payments reduce duration, and vice versa.

Sounds like what Stewardship said above.
I only noticed recently that if I divide the interest by the cost, my long bonds have very similar yields (which makes sense for the ones I bought around the same time). The yield is very different from the coupon, and I suppose I don't fully understand the coupon.

One thing we don't discuss a lot is the fact that 30 year treasuries of today have a much higher duration than in the old days of higher rates.  So the sensitivity to interest rates of our long bond allocation is higher than in HB's day.

So our bonds are more potent than what Harry had in the 70s?

Desert wrote: The important measure is duration rather than maturity.  Higher coupon payments reduce duration, and vice versa.  One thing we don't discuss a lot is the fact that 30 year treasuries of today have a much higher duration than in the old days of higher rates.  So the sensitivity to interest rates of our long bond allocation is higher than in HB's day.

That's interesting.  What was the duraton of a 30-year Treasury back in 1987 when the current PP was first published?

dualstow wrote:

  So the sensitivity to interest rates of our long bond allocation is higher than in HB's day.

So our bonds are more potent than what Harry had in the 70s?

Didn't anyone get this or is it just not as funny as I thought it was?

Funny because the words 'sensitivity' and "long bond" are used in the same sentence?

barrett wrote: Funny because the words 'sensitivity' and "long bond" are used in the same sentence?

Ah hah hah! 
More potent than in the 70s!

Its obviously a reference to cannabis 

Coupon is the rate when the bond initially traded at par. The bond will return principal + the coupon at maturity. This does not change for the life of the bond.

The higher yielding bond has a lower purchase price and lower yielding bond a higher purchase price. If held to maturity, both purchases return principal + the original coupon.

Interesting comment on LTT bond duration in HB's day. Didn't HB live until 2006. Not so long ago.

buddtholomew wrote: Didn't HB live until 2006. Not so long ago.

Yes. It drives me nuts that I missed calling into his radio show by a few years. But, I don't think I knew who he was in 2004-5, and I was in the middle of stock irrational exuberance at the time.

murphy_p_t wrote: UNITED STATES TREAS BDS 3.62500% 02/15/2044 0.61%
UNITED STATES TREAS BDS 2.75000% 08/15/2042 0.65%

This is the latest reading from my acct. I've noticed that the 2044 bond consistently moves less than the 2042 bond on a daily basis. How to explain? Why doesn't the longest date have greatest movement on a daily basis?

I agree with Stewardship and Desert that duration, not maturity, determines volatility. Longer maturity is often correlated with longer duration, but not always. I think Stewardship's verbal explanation of how coupon and maturity are related to duration is a good, intuitive one.

By my calculations, the 2044 bond you mentioned has a duration of 18.5 years, whereas the shorter 2042 bond has a slightly longer duration of 19.0 years. That would explain the slightly higher volatility of the 2042 bond.