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BONDS (Treasury Bonds, Corporate Bonds etc)


Vendetta
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Thought I’d start a thread on Bonds as I need educating. Any info no matter how basic please feel free to add. 
 

Bonds for beginners.....

Are Bonds a good investment? 


Treasury bonds can be good investments for those who are in-or-close-to retirement as well as younger investors who seek a stable return. Are bonds a good investment? Investors must consider several factors, including the type of bond, how much interest the bond pays, and how long their investment will be tied up. Investors must also weigh their risk tolerancewith a bond's risk of default, meaning the investment isn't repaid by the bond issuer. The good news is that Treasury bonds (T-bonds) are guaranteed by the U.S. government.

Bonds are debt securities that are issued by corporations and governments to raise funds. Investors purchase bonds by putting an upfront amount as an initial investment—called the principal. When the bond expires or matures—called the maturity date—the investors are paid back their principal. In return, investors usually receive a fixed, periodic interest payment from the entity that issued the bond.

Bonds including, T-bonds, can be a good investment for those who are seeking a steady rate of interest payments. Although bonds and Treasury bonds are popular, they have some disadvantages and risks associated with them and may not be ideal for every investor. This article compares the pros and cons of Treasury bonds and whether a bond is a good investment for younger investors and those who are approaching or in retirement.

 

KEY TAKEAWAYS

  • Treasury bonds can be a good investment for those looking for safety and a fixed rate of interest that's paid semiannually until the bond's maturity.
  • Bonds are an important piece of an investment portfolio's asset allocation since the steady return from bonds helps offset the volatility of equity prices.
  • Investors who are closer to retirement tend to have a larger percentage of their portfolio in bonds, while younger investors may have a smaller percentage.
  • Corporate bonds tend to pay a higher yield than Treasury bonds since corporate bonds have default risk, while Treasuries are guaranteed if held to maturity.
  • Are bonds good investments? Investors must weigh their risk tolerance with a bond's risk of default, the bond's yield, and how long their money will be tied up.

 

What Are Treasury Bonds? 

Treasury bonds (T-bonds) are government debt securities that are issued by the U.S. Federal government and sold by the U.S. Treasury Department. T-bonds pay a fixed rate of interest to investors every six months until their maturity date, which is in 20-30 years.1

 

However, the interest rate earned from newly-issued Treasuries tends to fluctuate with market interest rates and the overall economic conditions of the country. During times of recession or negative economic growth, the Federal Reserve typically cuts interest rates to stimulate loan growth and spending. As a result, newly-issued bonds would pay a lower rate of return in a low-rate environment. Conversely, when the economy is performing well, interest rates tend to rise as demand for credit products grows, leading to newly-issued Treasuries being auctioned at a higher rate.

 

Types of Treasuries 

There are several types of Treasury securitiesthat are offered with various maturity dates. For example, Treasury bills or T-bills are short-term bonds that have maturities from a few days to 52 weeks. Treasury notes or T-notes are very similar to Treasury bonds in that they pay a fixed rate of interest every six months until their maturity. However, Treasury notes have shorter maturity dates with terms of two, three, five, seven, and 10 years. The 10-year Treasury note is probably the most monitored of the Treasury securities since it is often used as a benchmark for interest rate products such as loans.  

 

Treasury notes are often referred to as Treasury bonds, which can make it confusing since a Treasury bond is technically a bond with a maturity date between 20 and 30 years. However, a Treasury note and a Treasury bond are essentially identical except for their maturity dates. Whether the Treasury security is a bill, note, or bond, the interest earned is exempt from state and local taxes. However, the interest income is subject to federal taxes.

 

Buying and Selling Treasury Bonds 

A Treasury note is sold by the Treasury Department via an online auction. Once the note has been purchased by an investor, there are two options. The investor can hold the bond until maturity, in which case the initial amount invested would be paid back when the bond matures. If the investor holds the bond to maturity, the amount that was invested is guaranteed to be paid back by the U.S. government.

The investor also has the option of selling the bond before it matures. The bond would be sold through a broker in the secondary market—called the bond market. However, investors should be aware that their initial investment is not guaranteed if the bond is sold early through the bond market. In other words, they may receive a lower amount than what they had initially invested.

 

Young Investors 

The interest paid from Treasury bonds tends to underperform the returns that can be generated from investing in equities. However, the rate earned from bonds should outpace inflation or the pace of rising prices, which tends to hover around 2%. All that said, there's still room for T-bonds in a young person's retirement account, which can benefit from the steady interest payments associated with these securities.

 

For example, the steady return can help to reduce volatility or fluctuations in the value of an investment portfolio. Using bonds to help partially offset the risk of loss from other investments helps to achieve diversification—meaning not all of your money is in one type of investment. Also, T-bonds are backed by the full faith and credit of the U.S. federal government, meaning investors won't lose their initial investment.

 

However, since younger investors have a longer time horizon, they typically opt for investments that offer long-term growth. As a result, T-bonds tend to represent a minority share of a younger person's investment portfolio. The precise percentage should be carefully determined based on the investor's tolerance for risk and long-term financial objectives.

A rule-of-thumb formula for portfolio allocation states that investors could formulate their allocation among stocks, bonds, and cash by subtracting their age from 100. The resulting figure indicates the percentage of a person’s assets that ought to be invested in stocks, while the remainder could be spread between bonds and cash. By this formula, a 25-year-old investor would consider holding 75% of the portfolio in stocks while splitting the remaining 25% between cash and bond investments.

 

Investors Near or in Retirement 

Retirees often buy bonds to generate an income stream in retirement. Their portfolio allocation changes and tends to become more conservative. As a result, the portion of the portfolio that's composed of bonds tends to rise. A portfolio that includes Treasury bonds, bills, or notes provide safety and helps to preserve their savings since Treasuries are considered risk-free investments.

 

With their consistent interest payments, T-bonds can offer an ideal income stream after the employment paychecks cease. Also, bond maturity dates can be laddered to create the continuous stream of income that many retirees seek.

 

One type of Treasury bond that even offers a measure of protection against inflation called inflation-protected T-bonds—also referred to as I bonds—have an interest rate that combines a fixed yield for the life of the bond, with a portion of the rate that varies according to inflation.

Government Bonds vs. Corporate Bonds 

Corporate bonds are also debt securities that are issued by a corporation. Just like Treasury bonds, corporate bonds have their advantages and disadvantages. Typically, corporate bonds pay interest payments, which can be based on a fixed rate throughout the life of the bond. The interest payments can also be based on a variable interest rate, meaning the rate can change based on market interest rates or some type of benchmark. When a corporate bond matures, the investor is paid back the principal amount that was invested. 

 

A corporate bond is backed by the corporation that issued the bond, which agrees to repay the principal amount to the investors. However, when buying corporate bonds, the initial investment is not guaranteed. As a result, corporate bondholders have default risk, which is the risk that the company may not repay its investors their initial investment. Whether the initial investment for a corporate bond is repaid or not depends on the company's financial viability. 

 

Since investors there is usually more risk with corporate bonds, they tend to pay a higher interest rate than Treasury securities. Conversely, Treasury bonds are guaranteed by the U.S. government as long as the investor holds the bond until maturity. As a result, Treasury bonds typically offer a lower interest rate than their corporate counterparts.

 

Retirees should consider their risk tolerance when making a decision as to whether to purchase a corporate bond or a Treasury security. Also, the time horizon is important when buying a bond, meaning how long the investment will be held. If a retiree is going to need the money within a few years, a Treasury bond might not be the best choice considering its long maturity date. Although a Treasury bond can be sold before its maturity, the investor may take a gain or loss, depending on the bond's price in the secondary market at the time of the sale.

 

Tax considerations should also be considered before purchasing any type of bond. Please consult a financial advisor before deciding whether purchasing a corporate bond or a U.S. Treasury security is right for you.

 

Pros and Cons of Treasury Bonds 

Although Treasury bonds can be a good investment, they have both advantages and disadvantages. Some of the advantages of bonds include:

 

Steady Income 

Treasury bonds pay a fixed rate of interest, which can provide a steady income stream. As a result, bonds can offer investors a steady return that can help offset potential losses from other investments in their portfolio, such as equities.

 

Risk-free 

Treasury bonds are considered risk-free assets, meaning there is no risk that the investor will lose their principal. In other words, investors that hold the bond until maturity are guaranteed their principal or initial investment.

 

Liquid 

Treasury bonds can also be sold before their maturity in the secondary bond market. In other words, there is so much liquidity, meaning an ample amount of buyers and sellers, investors can easily sell their existing bonds if they need to sell their position.

 

Many Investment Options 

Treasury bonds can also be purchased individually or through other investment vehicles that contain a basket of bonds, such as mutual funds and exchange-traded funds.

 

Despite the advantages, Treasury bonds come with some distinct disadvantages that investors should consider before investing. Some of the disadvantages include:

 

Lower Rate of Return 

The interest income earned from a Treasury bond can result in a lower rate of return versus other investments, such as equities that pay dividends. Dividends are cash payments paid to shareholders from corporations as a reward for investing in their stock. 

 

Inflation Risk 

Treasury bonds are exposed to inflation risk. Inflation is the rate at which prices for goods in an economy rise over time. For example, if prices are rising by 2% per year and a Treasury bond pays 3% per year, the investor realizes a net return of 1%. In other words, inflation or rising prices erodes the overall return on fixed-rate bonds such as Treasuries.

 

Interest Rate Risk 

Just as prices can rise in an economy, so too can interest rates. As a result, Treasury bonds are exposed to interest rate risk. If interest rates are rising in an economy, the existing T-bond and its fixed interest rate may underperform newly issued bonds, which would pay a higher interest rate. In other words, a Treasury bond is exposed to opportunity cost, meaning the fixed rate of return might underperform in a rising-rate environment.

 

Realized Loss 

Although Treasury bonds can be sold before they mature, please keep in mind that the price received for selling it may be lower than the original purchase price of the bond. For example, if a Treasury bond was bought for $1,000 and was sold before its maturity, the investor might receive $950 in the bond market. Investors are only guaranteed the principal amount if they hold the T-bond until maturity.

Pros
  • Pay steady interest income

  • Risk-free

  • T-bonds can easily be sold before maturity

  • Can be bought via ETFs and mutual funds

Cons
  • Lower rate of return vs. other investments

  • As market interest rates rise, T-bonds may underperform

  • Inflation can erode interest income

  • Bonds sold before maturity can realize a loss

 

Are Bonds a Good Investment? FAQs 

Why Would Investing in Bonds Be a Bad Idea? 

Whether a bond investment is bad or good depends on the investor's financial goal and market conditions. If an investor wants a steady income stream, a Treasury bond might be a good choice. However, if interest rates are rising, purchasing a bond may not be a good choice since the fixed rate of interest might underperform the market in the future. Please remember, when you purchase a Treasury bond, the fixed rate of interest for that bond never changes, regardless of where market interest rates are trading.

 

Also, investing in bonds and selling them in the secondary market before their maturity can lead to a loss similar to other investments such as equities. As a result, investors should be aware of the risk that they could lose money by purchasing and selling bonds before their maturities. If an investor needs the money in the next year or two, a Treasury bond, with its longer maturity date, might not be a good investment. 

 

Are Bond Funds a Good Investment? 

Bond funds can be a good investment since funds typically contain many types of bonds, which diversifies your risk of a bond defaulting. In other words, if a corporation experiences financial hardship and fails to repay its bond investors, those who hold the bond in a mutual fund would only have a small portion of their overall investment in that one bond. As a result, they would have less risk of financial loss than had they purchased the bond individually.

 

However, investors should do their research to ensure that the bonds within the fund are the type of bonds that you want to buy. Sometimes funds can contain both corporate bonds and Treasury bonds, and some of those corporate bonds might be high-risk investments. As a result, it's important to research the holdings within a bond fund before investing.

 

Are Bonds a Good Investment in 2021? 

In 2021, the interest rates paid on bonds have been very low because the Federal Reserve cut interest rates in response to the coronavirus pandemic and the resulting recession. If investors believe that interest rates are going to rise in the next couple of years, they may opt to invest in bonds with short-term maturities. 

 

For example, a two-year Treasury bill would pay a fixed rate of interest and return the principal invested in two years. If interest rates are higher in 2023, the investor could take that principal and invest it in a higher-rate bond at that time. However, if that same investor had purchased a 10-year Treasury note in 2021 and interest rates rose in the next couple of years, the investor would lose out on the higher interest rates because they would be stuck with the lower-rate Treasury note. Again, investors can always sell a Treasury bond before its maturity date; there could be a gain or loss, meaning you might not get all of your initial investment returned to you.

 

Also, please consider your risk tolerance. Treasury bonds, notes, and shorter-term Treasury bills are often purchased by investors for their safety. If you believe that the overall markets are too risky and your goal is to preserve your wealth, you might opt for a Treasury security despite their low-interest rates in the current environment. We can see from the chart below that Treasury yields have declined over the last several months.

US 10-Year Treasury Note Yield  (1990–2021)

A49E9123-B033-43DE-A8FD-BFE9E015F25C.thumb.jpeg.dfb9cb44c59c26e2f19c151457727613.jpeg
 

However, despite their low yields, bond investments can provide stability against the backdrop of a volatile equity portfolio. Whether purchasing a Treasury security is right for you depends largely on your risk tolerance, time horizon, and financial goals. Please consult a financial advisor or financial planner when considering whether to purchase any type of bond versus other investments.

 

Can You Lose Money Investing in Bonds? 

Yes, you can lose money when selling a bond before its maturity date since the selling price could be lower than the purchase price. Also, if an investor buys a corporate bond and the company goes into financial difficulty, the company may not repay all or part of the initial investment to bondholders. This default risk can increase when investors buy bonds from companies that are not financially sound or have little-to-no financial history. Although these bonds might offer higher yields, investors should be aware that higher yields typically translate to a higher degree of risk since investors demand a higher return to compensate for the added risk of default.

 

What Are the Best Bonds to Buy? 

The best bonds to buy largely depends on the investor's risk tolerance, time horizon, and long-term financial goals. Some investors might invest in bond funds, which contain a basket of debt instruments, such as exchange-traded funds. Investors who want safety and tax savings might opt for Treasury securities and municipal bonds, which are issued by local state governments. Corporate bonds can provide a higher return or yield, but the financial viability of the issuer should be considered.

 

The Bottom Line 

Bonds can find a place in any diversified portfolio whether you're young or in retirement. Bonds can provide safety, income and help to reduce risk in an investment portfolio. Bonds can be mixed within a portfolio of equities or laddered to mature each year, providing access to cash when they mature. Investors should consider some exposure to bonds as part of a well-balanced portfolio, whether they're corporate bonds, Treasuries, or municipal bonds. However, it would be a mistake for investors to assume that bonds are without risk. Instead, they should do their homework since not all bonds are created equal

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desertorchid

Wisealpha is a good website to get into corporate bonds. A bit to learn but bonds in general are essential for a decent sized portfolio IMO.

I think most experts advise approx 30% Cash/bonds, 30% stock, 30% property. My suspicion is most in the uk are 95% property and some Bitcoin/ TSLA stock.

 

 

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why do bonds make any sense in a future in which inflation goes up?  The interest rate is fixed, right?  So presumably you'll be getting, say, 2% but inflation is 10% - a huge loss? And the value of that bond on the open market will have cratered, so you'll lose if you sell to invest in a higher returning asset?

 

I understand where bonds make a lot of sense in a flattish or declining interest rate environment.  I just don't see how they make sense now.

 

disclaimer: I have no bonds at all.  because ape hands retard strong.

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@Vendettadude you're off your tits and/or you're overthinking it :P

there is enough shite out there to short already without getting into bonds

ie that shitty £££££ dumped its arsehole as soon as there was the smallest hint of risk off....that's what the world thinks of the UK nowadays

#islandprison

#donttakeitpersonally :Jumping:

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9 hours ago, desertorchid said:

A bit to learn but bonds in general are essential for a decent sized portfolio IMO

Warren Buffet has spoken o.O

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desertorchid
3 minutes ago, nirvana said:

Warren Buffet has spoken o.O

No Sage but would hazard a guess 9O% of the population haven't a clue what bonds even are.

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desertorchid
6 hours ago, wherebee said:

why do bonds make any sense in a future in which inflation goes up?  The interest rate is fixed, right?  So presumably you'll be getting, say, 2% but inflation is 10% - a huge loss? And the value of that bond on the open market will have cratered, so you'll lose if you sell to invest in a higher returning asset?

 

I understand where bonds make a lot of sense in a flattish or declining interest rate environment.  I just don't see how they make sense now.

 

disclaimer: I have no bonds at all.  because ape hands retard strong.

They don't, but to think medium term inflation is baked in is equally foolhardy. The last 2 decades have consistently had false alarms on inflation. Holding bonds has been a one way bet in that time.

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Didn't have time to read all of that. But it's a good topic.

The inflation risk element amused me because it showed inflation below the coupon. We're worried that inflation will be 10% when you are only getting 2%. I'd be interested to understand the effect if you are getting 5% coupon with average inflation over 10 years, say, of 3% but a period in the middle of 10%.

I may have also missed the discussion about the price of the bond on the second hand market where most are bought. Take a long term UK gilt (government bond) - Treasury 3,3/4% 2052 (T52) Gilt - It's currently priced around £165, so you pay £165 in order to get 3.75% of £100 each year and the principal of £100 back in 2052. You only get back £100 - not the £165 you paid! So your £165 buys £3.75 p.a (c. 2.3%) plus £100 in 31 years time.

https://www.hl.co.uk/shares/shares-search-results/t/treasury-3,34-2052

(I think that's right!!!)

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desertorchid
24 minutes ago, CVG said:

Didn't have time to read all of that. But it's a good topic.

The inflation risk element amused me because it showed inflation below the coupon. We're worried that inflation will be 10% when you are only getting 2%. I'd be interested to understand the effect if you are getting 5% coupon with average inflation over 10 years, say, of 3% but a period in the middle of 10%.

I may have also missed the discussion about the price of the bond on the second hand market where most are bought. Take a long term UK gilt (government bond) - Treasury 3,3/4% 2052 (T52) Gilt - It's currently priced around £165, so you pay £165 in order to get 3.75% of £100 each year and the principal of £100 back in 2052. You only get back £100 - not the £165 you paid! So your £165 buys £3.75 p.a (c. 2.3%) plus £100 in 31 years time.

https://www.hl.co.uk/shares/shares-search-results/t/treasury-3,34-2052

(I think that's right!!!)

Yes, you must consider YTM and not coupon rate. The mantra pre- QE was always "the market sets rates not the CB's", and to an extent this still true. Bond prices are still essentially dictated by the financial markets. "Temper tantrums " as we are seeing again now are the heightened anxieties shown by possible future inflation and impact on borrowing costs. In the 2009 aftermath, these emotional outbursts were intermittent but were ultimately tamed by post downturn inflation being reasonably muted and short term (although did go above 5% in the UK and Mervyn King had to hold his nerve).

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sleepwello'nights
30 minutes ago, CVG said:

Didn't have time to read all of that. But it's a good topic.

The inflation risk element amused me because it showed inflation below the coupon. We're worried that inflation will be 10% when you are only getting 2%. I'd be interested to understand the effect if you are getting 5% coupon with average inflation over 10 years, say, of 3% but a period in the middle of 10%.

I may have also missed the discussion about the price of the bond on the second hand market where most are bought. Take a long term UK gilt (government bond) - Treasury 3,3/4% 2052 (T52) Gilt - It's currently priced around £165, so you pay £165 in order to get 3.75% of £100 each year and the principal of £100 back in 2052. You only get back £100 - not the £165 you paid! So your £165 buys £3.75 p.a (c. 2.3%) plus £100 in 31 years time.

https://www.hl.co.uk/shares/shares-search-results/t/treasury-3,34-2052

(I think that's right!!!)

I posed a question about this subject on the credit deflation thread, specifically about UK Index linked Gilts. Where the interest rate is increased by RPI. The coupon and principal will automatically keep pace with inflation. Eventually the regular interest payments will be higher than the recently increased US Treasuries long term yield of 1.5% and the principal is protected against inflation as well.

These have fallen in value quite dramatically in recent days. It doesn't seem logical to me. What am I missing?

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desertorchid
18 minutes ago, sleepwello'nights said:

I posed a question about this subject on the credit deflation thread, specifically about UK Index linked Gilts. Where the interest rate is increased by RPI. The coupon and principal will automatically keep pace with inflation. Eventually the regular interest payments will be higher than the recently increased US Treasuries long term yield of 1.5% and the principal is protected against inflation as well.

These have fallen in value quite dramatically in recent days. It doesn't seem logical to me. What am I missing?

To be honest I am not clear what you think your missing here. 

Where the interest rate is increased by RPI.- Bond prices may change according to the risk associated with them

 

The coupon and principal will automatically keep pace with inflation.- The coupon rate on an openly traded bond will not change. YTM will. In the primary market, coupon rates may change on new issuances to "get them away"

 

Eventually the regular interest payments will be higher than the recently increased US Treasuries long term yield of 1.5% and the principal is protected against inflation as well.- The US treasury long term yield is the interest rate paid, so not sure how you get more. Principal is always protected, as long as you consider the bond price at purchase

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So, most of us think that Gilts are going to fall heavily in value so that the yields increase with our predicted inflation. My question is how to determine when to buy back in so that we can secure a gauranteed yield (and principal) far greater than the likely future inflation. For example, do we buy back in when the YTM is 5% or 6%, say, and current inflation is 10% but likely to keep dropping back to 2% in the long term? At some point, those boring gilts are going to be worth a bomb.

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sleepwello'nights
1 hour ago, desertorchid said:

 

Eventually the regular interest payments will be higher than the recently increased US Treasuries long term yield of 1.5% and the principal is protected against inflation as well.- The US treasury long term yield is the interest rate paid, so not sure how you get more. Principal is always protected, as long as you consider the bond price at purchase

The coupon on most of the Indexed gilts in the Vanguard fund I purchased is 1.25% + RPI. The actual yield will vary depending on the price paid when issued. Inflation will be unlikely to fall below, what 2%, so up to maturity in 2045 (the longest dated bond in the fund) the running yield must increase above 1.5% surely?

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HousePriceMania

https://moneyweek.com/9201/the-best-way-to-buy-linkers-43109

iShares GBP Index-linked gilts (LSE:INXG)

The only question you should be asking is, when do you put all your cash in there.

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The Masked Tulip

 Hunter v.s. Kaplan -  Feb 24th update:

David Hunter

Feb 24

S&P corrected back to its 50 day moving average yesterday & reversed upward. Equity markets now poised for a big run into the 2nd Qtr. S&P to 4600,Nasdaq to 17,000,DJIA to 37,000. Hold onto your hats. We're about to see what a true melt-up looks like. The economy is opening up.

Steven Jon Kaplan;

@sarichter: We will have to agree to strongly disagree on this topic. High prices absolutely cause bubbles to burst. If you disagree then maybe tell me what caused U.S. stocks to collapse after September 1929, March 1937, January 1973, March 2000, or February 2021. (I couldn't resist including the last one.)

Market Bubble Looks Near To Bursting - Warren Ludford

Feb 24, 2021. 07:28 PM

@banmate6: You could be right. However, the ratio of insider selling to insider buying is more than double its previous all-time record. I have a hard time seeing U.S. stocks continuing to rally under such a condition.

Feb 24, 2021. 07:42 

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The Masked Tulip

Bonds are confusing for most people. You have to separate a bond issued by a government and a bond issued by a company.

The people who aim to make money from US government bond prices rising would tend to buy the TLT index. Or they sell it if they think bonds are going down.

https://www.google.com/search?client=firefox-b-d&q=tlt+stock

There is a 3x bull and 3 x bear fund which tracks the TLT but it is HIGH, HIGH HIGH RISK and only experienced traders should trade it. Even then most retail investors would only trade it using small sums and literally be in and out of the funds within hours at most. They are NOT a long term hold - yes, you can get lucky and get in at the start of a trend but if it goes against you then you can lose everything.

 

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Sugarlips

Macrovoices will be having this guy on the show on April 1, he’s an educated contrarian and seemingly one of the few names left to still be hanging his hat on deflation incoming. He has a large bond position which is currently heavily underwater but he remains unperturbed:

Edit to add Martin North is also a firm believer deflation ahead, and the fed will intervene when the 10y gets to 2% (which could be next week at this rate..) here’s his latest ramblings:

 

Edited by Sugarlips
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As many of you know I am an exceedingly thick but lucky person - a Forrest Gump type character. It must be my gypsy blood (or my exceeding good and kind nature - karma has never let me down). Anyway.... I digress....

Explain what’s going on here. Stock market collapses but this goes up.
 

Why’s that then? 

46C76DB7-3C9C-4861-B3C7-9C29ED608FA8.thumb.jpeg.5ed86117bcbf26a90f965676468f08e2.jpeg

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AlfredTheLittle
4 hours ago, Vendetta said:

As many of you know I am an exceedingly thick but lucky person - a Forrest Gump type character. It must be my gypsy blood (or my exceeding good and kind nature - karma has never let me down). Anyway.... I digress....

Explain what’s going on here. Stock market collapses but this goes up.
 

Why’s that then? 

46C76DB7-3C9C-4861-B3C7-9C29ED608FA8.thumb.jpeg.5ed86117bcbf26a90f965676468f08e2.jpeg

I'm thick too so this may well be wrong, but as far as I know bonds are bought by pension companies for a fixed income to match the pensions they have to pay out.

So they buy a £100 bond paying 2% interest. Then interest rates fall to 1%, so now other pension companies are happy to buy a bond paying 1.5%. Therefore, they are willing to pay £133 for the bond paying out £2, as £2 is 1.5% of £133.

So bond prices go up when interest rates are expected to go down, and down when interest rates are expected to go up. That's why they went up in March, because big financial shit was expected, which would keep interest rates low for longer.

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desertorchid
5 hours ago, Vendetta said:

As many of you know I am an exceedingly thick but lucky person - a Forrest Gump type character. It must be my gypsy blood (or my exceeding good and kind nature - karma has never let me down). Anyway.... I digress....

Explain what’s going on here. Stock market collapses but this goes up.
 

Why’s that then? 

46C76DB7-3C9C-4861-B3C7-9C29ED608FA8.thumb.jpeg.5ed86117bcbf26a90f965676468f08e2.jpeg

Traditionally there is an inverse relationship between bond prices and stocks. Price movements depend on the risk attitude prevailing in the market at a particular time. It has been risk on for a few weeks now with stocks, bitcoin heading up, this fund has actually lost over 10% in recent weeks. Yesterday was just a slight pullback with the DOW losing most of FEB gains and funds like this getting a small reprieve, hence the 2% rise.

Edited by desertorchid
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