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TLT value increased when FED raised rates?
Posted: Wed Dec 16, 2015 2:00 pm
by lordmetroid
I thought the bonds where suppose to loose value when rates increased. This is crazy!
Re: TLT value increased when FED raised rates?
Posted: Wed Dec 16, 2015 2:06 pm
by Alanw
Rate hike was one of the worst kept secrets. All priced in far in advance.
Re: TLT value increased when FED raised rates?
Posted: Wed Dec 16, 2015 2:18 pm
by dualstow
lordmetroid wrote:
I thought the bonds where suppose to loose value when rates increased. This is crazy!
If there's one thing I've learned over and over and over on this forum, it's that gentle Fed rate hikes wouldn't necessarily affect our long term bonds at all. So, definitely not crazy.
Re: TLT value increased when FED raised rates?
Posted: Wed Dec 16, 2015 5:59 pm
by ochotona
Also, TLT and FED funds rate are the two extreme ends of the yield curve... they are not tightly linked.
Re: TLT value increased when FED raised rates?
Posted: Wed Mar 02, 2016 1:35 pm
by economicsjunkie
lordmetroid wrote:
I thought the bonds where suppose to loose value when rates increased. This is crazy!
The Fed Funds rate is a short term rate.
Put simply: The yield investors ask on a 30 year Treasury is essentially their expected average yield of all the 30 1 yr Treasurys inside that timespan (or all the 60 6 month Treasurys etc.), plus some premium to compensate for surrendering your money for a longer period. So even if the yield on the 1 yr were to go to 4%, if investors expect that increase to be short lived and 1 yr yields to fall back to around 0.5% for example, and then stay below 3% for decades to come, they may still be satisfied with a 3% yield on present 30 year Treasurys.