The Bond Dream Room

[dualstow]

Fed buying bonds.

And that worked for about 1.5 hours....
...

Silly Jim Cramer thought he was going to be the hero that saved America.

[Tortoise]

Usually TLT moves inversely with the 30-year Treasury yield (^TYX), but this past week that relationship hasn't always been holding. Sometimes I'll see them both move up or down together, by very large percentages.

Is that most likely due to large bid-ask spreads during this market turmoil (i.e., liquidity fluctuations), or is it because the shape of the yield curve is flopping around like a spaghetti noodle and TLT's bonds consist of a range of maturities (e.g., 20-30 years) instead of 30-year bonds exclusively?

[boglerdude]

Looks like I fell for the narrative that you can get a deal on downgraded investment grade bonds because institutions are forced to sell them. I bought FALN, this chart is performance since launch. Trounced by stocks and Vanguard's junk fund. Any reason to keep? Any scenarios where it could outperform? I'll plan to dump it and put into VTI/VTSMX

[mathjak107]

it is a little early for high yield yet ... the interest on them will be insanely high once a lot of BBB is no longer investment grade ...

[Ad Orientem]

Bonds are getting hammered as investors are finally visualizing the end of the global Covid crisis. The 10 yr may be about to break 1%.

[buddtholomew]

Here come LTT’s like a galloping herd of horses...

[pp4me]

What a difference a day makes. So are bonds getting hammered or are they galloping like a herd of wild horses?

No need to answer really. I use the PP so I don't have to think that much about it.

[buddtholomew]

The question for me was how far yields would climb before they fell, not if they would fall.

[Ad Orientem]

Barring aggressive intervention by central banks, I don't see bond yields being sustainable at these levels over the long term. It seems increasingly likely that a vaccine will be available to the general public sometime in 2021. That means next year is likely to see the beginning of the end of the Covid crisis. With the Fed pledged to support inflation, and the economic recovery likely to gain steam, I fond it hard to see the attraction for most investors in longer term bonds that are basically guaranteed to offer a negative real interest rate as opposed to equities, or just about any other asset class.

[mathjak107]

The question for me was how far yields would climb before they fell, not if they would fall.

the historical average was 5%

[pmward]

The question for me was how far yields would climb before they fell, not if they would fall.

the historical average was 5%

Historical average is history. There's no reason to assume that a historical average will, or even should, be the future average. America is a lot more "developed" these days. To get a 5% yield you need strong sustained growth. It would be incredibly difficult to get an economy our size to grow at a large enough and sustained enough clip to justify 5% yields.

[mathjak107]

I agree but non the less that is the range for much of history ....where we go from here no one knows

[pmward]

I agree but non the less that is the range for much of history ....where we go from here no one knows

Agreed. Of all the major asset classes, bonds are the most unpredictable and difficult to trade. In the medium term, the last 2 years were really good for bonds. It's not unreasonable to expect to see some mean reversion going forward. How long and how far that mean reversion goes, and whether or not yields have reached a secular bottom, we will have to wait to find out. The real important question is whether or not that mean reversion is accompanied by a boost in economic growth. If it is, then secular bottom being in is possible. If not, then secular bottom being in is unlikely. S&P 500 earnings in aggregate peaked all the way back in 2012. The economy has been much weaker than most people realize. In that environment, it's not surprising at all that the secular bond bull market has continued over the last 8 years, even though it hasn't been a straight shot and has had a few (sometimes large) mean reverting episodes.

[Kriegsspiel]

Foreign investors resumed selling U.S. Treasury bonds and notes in December, Treasury department data on Tuesday showed, after they made net purchases in November.

On a transaction basis, foreigners sold $20.7 billion in Treasuries in December, after buying $9.6 billion of them in November, the U.S. Treasury Department said.

link

Heh

[Ugly_Bird]

Foreign investors resumed selling U.S. Treasury bonds and notes in December, Treasury department data on Tuesday showed, after they made net purchases in November.

On a transaction basis, foreigners sold $20.7 billion in Treasuries in December, after buying $9.6 billion of them in November, the U.S. Treasury Department said.

link

Heh

In December? I thought we are already in February :-)

[dualstow]

They’re still counting.

[dualstow]

I was looking up the price of TLT at CNBC and the search also produced a video clip of Dan Nathan recommending buying TLT as his "Last Chance Trade." Now, I don't know how long he meant for traders to hold it, but I noticed the date of the clip was not today but early February. And then I noticed it was 2020.

[Kbg]

Not so dreamy these days on the long side. Down over 23%, worst since the 80s.

[mathjak107]

It is a bond bear market so far ...but it is at a time we still have very very low rates and high stock valuations.

This is unlike the past when bonds were down ...equities were down too so the coming out of a bear market and those juicy early gains had plenty of lift ...that is not the case today with rates still near record lows and stocks still near record highs .

We are pretty much in uncharted waters in modern investing times which are very different than the old days with instant information, more investors, more alternatives for protection in a down market and high frequency trading making up 80% of a days volume .

Any comparison to the 1950’s or 1960 days is silly in my opinion ...nothing can be compared to investing back then .

With average historical rates in the 5% range or so this bear market can take decades if it wants to

[Cortopassi]

mj, couldn't help thinking of a cartoon I used to watch as a kid when reading your response.

Hell, you're making it sound like "throw everything into Bitcoin!"

[mathjak107]

Boy , if we all only did that we wouldn’t need investing anymore

[Kriegsspiel]

Shhh, no tears. Only dreams now.

[Kbg]

For me I just couldn't do PP orthodoxy anymore when it came to LTTs. My duration is around 6.5 and I debate myself all the time whether or not I'm nuts for going that long at this moment in time.

I'm not a gloom and doomer on interest rates but I don't think it is even debatable, at a minimum, that the PP forward returns are "historical" minus whatever the cap gains returns have been on LTTs isolated from the coupon returns.

My secret hope is that interest rates will exceed my quite low mortgage rate in the not too distant future. That would be cool and simplify things greatly as to optimizing assets/wealth...but with the Fed buying everything in sight, I'm not expecting to be pleasantly surprised any time soon.

[mathjak107]

Even 6.5 years can be to long .

I know my other model I swapped for the pp is up this year .
The most conservative model is 25% equities with the bond side a total bond fund , a high yield fund and a very short term treasury bond fund .....

There is just no bottom in Tlt ...I stopped even trying to add more money to bring it back up ..

I have far more faith in gold

[Kbg]

Even 6.5 years can be to long .

I know my other model I swapped for the pp is up this year .
The most conservative model is 25% equities with the bond side a total bond fund , a high yield fund and a very short term treasury bond fund .....

There is just no bottom in Tlt ...I stopped even trying to add more money to bring it back up ..

I have far more faith in gold

Reading your DT adventures infrequently it seemed you were buying the small dips and selling the small pops...that works until you catch a trend and then it doesn't work so great. TLT is in a definite downward trend. It could turn though, who knows.

If I've mischaracterized, apologies in advance.