Flat yield curve and switching to intermediate Treasuries

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

User avatar
dualstow
Executive Member
Executive Member
Posts: 14228
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Flat yield curve and switching to intermediate Treasuries

Post by dualstow » Wed Dec 20, 2017 3:38 pm

By the way, Soph, what do you consider to be intermediate? Like 5- and 7-year notes?
Sam Bankman-Fried sentenced to 25 years
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by buddtholomew » Wed Dec 20, 2017 3:40 pm

Cortopassi wrote:TLT has gotten crushed the past few days. I know that doesn't add anything to the discussion...
Who knew I would lose my shirt in bonds >:D
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by sophie » Wed Dec 20, 2017 10:37 pm

dualstow wrote:By the way, Soph, what do you consider to be intermediate? Like 5- and 7-year notes?
Greater than 3 years and less than 20?
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Thu Dec 21, 2017 5:29 am

sophie wrote:
dualstow wrote:By the way, Soph, what do you consider to be intermediate? Like 5- and 7-year notes?
Greater than 3 years and less than 20?
To me, Intermediate is 4 to 7 ish.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14228
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Flat yield curve and switching to intermediate Treasuries

Post by dualstow » Fri Dec 22, 2017 2:01 pm

I might put some intermediate notes in my vp.
Sam Bankman-Fried sentenced to 25 years
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by Kriegsspiel » Fri Dec 22, 2017 8:39 pm

I've been rolling over 4wk treasuries for a while now outside of my PP, no complaints.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14228
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Flat yield curve and switching to intermediate Treasuries

Post by dualstow » Sat Jan 20, 2018 7:28 am

dualstow wrote:I might put some intermediate notes in my vp.
Sophie, that’s what I’m doing with new cash this month. I’m the last person anyone should copy. I only mention it because I’d feel guilty about vocally supporting long bonds and “secretly” eschewing it.

While I haven’t corrupted my pp, I’ve only added to the cash portion lately, or to the vp.
Intermediate treasury notes and short or intermediate corporate bonds.
Sam Bankman-Fried sentenced to 25 years
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Sat Jan 20, 2018 8:42 am

FWIW, there is no long Treasury sell signal coming from 1-year lookback time series momentum. And momentum has been an awful strategy for long bonds, because they've been in a 35 year bull market. If the tide turns, I'm sure I'll be commenting on it. But for now, I would not sell any.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14228
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Flat yield curve and switching to intermediate Treasuries

Post by dualstow » Sat Jan 20, 2018 12:16 pm

My oldest bonds don't "expire" ( = only 20 years left) until 2020, and then I'm going to be forced to buy some new ones, or VGLT.
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by sophie » Sun Jan 21, 2018 6:50 am

dualstow wrote:
dualstow wrote:I might put some intermediate notes in my vp.
Sophie, that’s what I’m doing with new cash this month. I’m the last person anyone should copy. I only mention it because I’d feel guilty about vocally supporting long bonds and “secretly” eschewing it.

While I haven’t corrupted my pp, I’ve only added to the cash portion lately, or to the vp.
Intermediate treasury notes and short or intermediate corporate bonds.
I can't fault you at all! I haven't hit the Rubicon quite yet, but I will when it's time for the annual Roth etc contribution. I still have no idea what I'll do, but thinking I could get away with not buying bonds at all if I let them drift down to the 15% mark. I'm not sure even intermediate Treasuries are worth it, as they won't provide much of a gain if rates go down, and the yield is hardly better than the 2 year note.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Sun Jan 21, 2018 8:45 am

I heard Bill Gross on a podcast saying that 10 year Treasuries will break even in 2018, if the interest rate for that bond stats below 3%. The bond value will decrease, but bond holders will get more interest on newly purchased bonds (this happens in a fund, where things are being sold and bought all the time to keep the duration stable).
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by buddtholomew » Sun Jan 21, 2018 10:45 am

Which asset will rise to buoy the portfolio if stocks fall?
I keep coming back to this fundamental question and all I come up with is gold, LTT’s and cash. We invest in the PP because we don’t know what the future holds even when it is clearly evident to the majority of investors. Remember the crowd is often wrong.

I continue to purchase ITT’s in retirement accounts bi-weekly and in taxable contributing to cash. LTT’s in PP still at 20% and I will probably be ready to purchase more when they reach 15%. What’s the alternative?
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by InsuranceGuy » Wed Jan 24, 2018 12:48 am

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 9:08 pm, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Mon Jan 29, 2018 9:17 am

I see tax loss harvesting in my future...
User avatar
jhogue
Executive Member
Executive Member
Posts: 755
Joined: Wed Jun 28, 2017 10:47 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by jhogue » Mon Jan 29, 2018 10:09 am

ochotona wrote:I see tax loss harvesting in my future...
Are you saying you look forward to tax loss harvesting LTTs in a taxable account?

All my LTTs are in tax deferred (76%) or Roth accounts (24%). I have no LTTs in taxable and have been wondering if I should re-think that asset location strategy.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Mon Jan 29, 2018 7:02 pm

jhogue wrote:
ochotona wrote:I see tax loss harvesting in my future...
Are you saying you look forward to tax loss harvesting LTTs in a taxable account?

All my LTTs are in tax deferred (76%) or Roth accounts (24%). I have no LTTs in taxable and have been wondering if I should re-think that asset location strategy.
Looking forward to it is not quite right... I see it in my future. It's like getting a boil lanced.
User avatar
jhogue
Executive Member
Executive Member
Posts: 755
Joined: Wed Jun 28, 2017 10:47 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by jhogue » Tue Jan 30, 2018 8:16 am

When you put it like that, I guess I am not missing anything!
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
jhogue
Executive Member
Executive Member
Posts: 755
Joined: Wed Jun 28, 2017 10:47 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by jhogue » Wed Jan 31, 2018 8:56 am

This just in. The bond market really is crazy.

See the article in today's Wall Street Journal, "Easy-Money Decade Upends Bond Market."
The accompanying graph shows that the yield on 10 year Portuguese government bonds is now higher than 10 year U.S. Treasurys.

Think about it: Which would you rather own?
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by buddtholomew » Wed Jan 31, 2018 9:43 am

That makes sense to me.
More risk, higher yield.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Wed Jan 31, 2018 11:43 am

So if I tax-loss harvest my Treasuries, do I just buy a different CUSIP, even if the maturity date is only different by 1 month? Is that "different enough" for the IRS? I don't want to be disallowed due to wash sale rules.
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by Mr Vacuum » Wed Jan 31, 2018 12:05 pm

ochotona wrote:So if I tax-loss harvest my Treasuries, do I just buy a different CUSIP, even if the maturity date is only different by 1 month? Is that "different enough" for the IRS? I don't want to be disallowed due to wash sale rules.
I was wondering the same thing and looked around the other day. The question is not settled in great detail, but 1 month is probably not enough, especially at 20 years out.

http://www.aaii.com/journal/article/kee ... sale-rules
The law has clarified which bonds are considered substantially identical. Revenue Ruling 58-211 summarizes these findings. The Treasury Department determined that to be considered substantially identical the bonds must not be substantially different in any material feature. The material features include the issuer, maturity, interest rate and yield, and any early redemption restrictions provisions. Thus, selling a bond from an issuer and buying a new bond from the same issuer is not a wash sale as long as the maturity date on the new bond is significantly different, or the new bond has a significantly different coupon interest rate or early redemption rights.

Determining what magnitude of change is significant is the challenge here. When considering whether bond maturity dates were significantly different, a court ruled that a six-month difference on a maturity of one year is significant, but a six-month difference on a maturity of 20 years is not. In another case, the court ignored the maturity date difference of 2½ years when both bonds were callable beginning on the same date. If concerned about whether the bonds’ material features are significantly different, investors might be wise to replace the bond with a bond from a different issuer. This will keep the transaction from violating the wash-sale rules.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by ochotona » Wed Jan 31, 2018 12:21 pm

Play the hippity hop game, or wait in cash. Not very clear
User avatar
jhogue
Executive Member
Executive Member
Posts: 755
Joined: Wed Jun 28, 2017 10:47 am

Re: Flat yield curve and switching to intermediate Treasuries

Post by jhogue » Wed Jan 31, 2018 1:27 pm

jhogue wrote:This just in. The bond market really is crazy.

See the article in today's Wall Street Journal, "Easy-Money Decade Upends Bond Market."
The accompanying graph shows that the yield on 10 year Portuguese government bonds is now higher than 10 year U.S. Treasurys.

Think about it: Which would you rather own?

Oops!

A definite Freudian slip. I meant to write that 10 year Portuguese bonds now have a LOWER yield than 10 year U.S. Treasurys.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by buddtholomew » Wed Jan 31, 2018 4:26 pm

jhogue wrote:
jhogue wrote:This just in. The bond market really is crazy.

See the article in today's Wall Street Journal, "Easy-Money Decade Upends Bond Market."
The accompanying graph shows that the yield on 10 year Portuguese government bonds is now higher than 10 year U.S. Treasurys.

Think about it: Which would you rather own?

Oops!

A definite Freudian slip. I meant to write that 10 year Portuguese bonds now have a LOWER yield than 10 year U.S. Treasurys.
Way to flip my mind upside down.
Agree, that seems ludicrous that US 10 year treasuries are more risky than their Portuguese counterparts.
We do have 20 trillion in debt, but who cares since we can print even more.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Flat yield curve and switching to intermediate Treasuries

Post by buddtholomew » Wed Jan 31, 2018 4:31 pm

ochotona wrote:Play the hippity hop game, or wait in cash. Not very clear
If you choose to lower your equity holdings then I think you are asking your long-term treasuries to play a less significant role.
I would personally switch to IT-treasuries if I reduced stock investments.
Can't consider this options as I have significant equities and still hold onto the belief there is no better diversifier than long-term treasuries when stocks fall.
Might play out differently this time so I have a ton of cash too.
Post Reply