# Lifestyles & Discussion > Personal Prosperity >  My economics teacher: Buy treasury bonds!

## John F Kennedy III

My economics professor just told all of us that we should buy treasury bonds. He said they are a good investment.

HAHAHAHAHA!

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## legion

He's right. US Government Securities are a good investment.

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## The Gold Standard

> He's right. US Government Securities are a good investment.


They are the most expensive they will ever be and the interest payments are worth less every day. Sounds like a great investment.

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## legion

> They are the most expensive they will ever be and the interest payments are worth less every day. Sounds like a great investment.


I'm sorry, but I fail to see your point. What interest does gold pay?

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## The Gold Standard

> I'm sorry, but I fail to see your point. What interest does gold pay?


None, but you don't lose your principal either. With treasuries you lose value over time.

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## legion

> None, but you don't lose your principal either. With treasuries you lose value over time.


When my bonds mature I will get the principal back.

Bonds are calculated so that the sum of the present value of the coupon payments, and the present value of the principal being paid back are always equal to the "par" value of the bond.

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## The Gold Standard

> When my bonds mature I will get the principal back.
> 
> Bonds are calculated so that the sum of the present value of the coupon payments, and the present value of the principal being paid back are always equal to the "par" value of the bond.


Yes, good for you. How much will the principal buy when you get it back? Not as much as it did when you bought the bond. Even if you add in the pitiful coupon payments.

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## Danke

> I'm sorry, but I fail to see your point. What interest does gold pay?


None, but it went from around 1100 in 2009 to over 1600 now when you were 70% into US dollars.

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## tsai3904

> When my bonds mature I will get the principal back.


What happens to your principal in real terms if interest rates are substantially higher the day you get your principal back?

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## cubical

> He's right. US Government Securities are a good investment.


We need more guys like you. You give me a chance to load up.

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## Lafayette

How many double cheese burgers will your investment buy you from the $35.99 Mc Donald's value menu  in 10-30 years?

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## John F Kennedy III

> How many double cheese burgers will your investment buy you from the $35.99 Mc Donald's value menu  in 10-30 years?


Good question.

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## smhbbag

Y'all must consider me really dumb.  My entire 401k has been in a long-term treasury fund for over a year now.  

Being dumb, I only got 30% return on my whole pot in the last 12 months.  

Maybe if I hang around I'll learn something.

When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.

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## John F Kennedy III

> Y'all must consider me really dumb.  My entire 401k has been in a long-term treasury fund for over a year now.  
> 
> Being dumb, I only got 30% return on my whole pot in the last 12 months.  
> 
> Maybe if I hang around I'll learn something.
> 
> When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.


Don't worry, it'll get confiscated. Hopefully you'll learn then.

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## Bern

Buying Treasuries is a vote of confidence in the Federal Reserve and PPT.  Buying gold is a vote of no confidence.

Foreign investment into Treasuries is disappearing:

http://www.zerohedge.com/news/china-...gs-50-one-year

The Fed is picking up the slack:


> In 2011, the Fed purchased a stunning 61% of Treasury issuance. ...


http://online.wsj.com/article/SB1000...googlenews_wsj

Bill Gross is dumping Treasuries in favor of mortgage bonds.

http://finance.yahoo.com/blogs/daily...115229488.html
http://www.investmentnews.com/articl...FREE/120319999

Treasuries are "earning" a negative real rate of interest:

http://www.zerohedge.com/news/guest-...ritical-metric
older:  http://gata.org/node/10899

Caveat emptor.

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## thoughtomator

It's one thing to use UST as a short-term trading vehicle, but don't be a fool - there is a real risk of getting stuck with them while the value they represent is devalued out from under you.

PMs of course are a hedge against that risk. Unfortunately PM markets are also jacked to all hell with leveraged speculation, nothing in this market is clean anymore.

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## PaulConventionWV

> My economics professor just told all of us that we should buy treasury bonds. He said they are a good investment.
> 
> HAHAHAHAHA!


Lol.  Anyone who knows anything about investing knows that is bull***.  And he's a professor?  Rofl.

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## PaulConventionWV

> When my bonds mature I will get the principal back.
> 
> Bonds are calculated so that the sum of the present value of the coupon payments, and the present value of the principal being paid back are always equal to the "par" value of the bond.


They are a low-risk investment.  You never get good returns on something that has very low risk.  High risk, high reward.  Government bonds have a higher chance of not beating inflation over time, whereas Fortune 500 companies have higher chances of getting good returns over time.  If low-risk automatically means it's a good investment, then by all means, but don't expect to make much off of it.  I've had a bond in for over 10 years and it's not even halfway matured.  

However, if you invest in small business or big companies, you have a much higher chance of good returns, and as long as you diversify your portfolio, you should be able to eliminate most of the risk associated with those types of investments.  Treasury bonds are just becoming more and more worthless as an investment.

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## No Free Beer

I remember my ECON professor gave me (literally gave me) Atlas Shrugged, saying, "I ordered this and I don't want to read it. You can have it."

She went to MIT. 

My advice would be to just do your work and ignore your professors stupid ass advice. Don't fight w/ your professor, won't get you anywhere.

There isn't any reason to debate them in class because the market will prove us correct, everytime.

You 1 v Professor 0

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## rpwi

The real value in treasuries is not their yield but their resale value.  They are speculative instruments because they are the primary means in which the Fed inserts reserves into the banking system.  If you suspect that the demand for reserves will go up in the banking system you buy t-bills...even if they yield a pathetic 2% interest for a 10 year maturity.  Why...because you know however overpriced they are now (and they are big time...we have a bubble) they can become even more overpriced through increased open market transactions.

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## PaulConventionWV

> I remember my ECON professor gave me (literally gave me) Atlas Shrugged, saying, "I ordered this and I don't want to read it. You can have it."
> 
> She went to MIT. 
> 
> My advice would be to just do your work and ignore your professors stupid ass advice. Don't fight w/ your professor, won't get you anywhere.
> 
> There isn't any reason to debate them in class because the market will prove us correct, everytime.
> 
> You 1 v Professor 0


Why not debate them in class?  Staying silent does even less good.  If debating is what class is about, then make it on a subject that actually matters.

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## WilliamC

For the 1% who have enough wealth to make diversification a good strategy and who have enough cash flow to make regular contributions to their investments then I could see having some in T-bills would make more sense than keeping the equivalent amount in cash.

For the rest of the 99% who don't have enough cash flow to make regular contributions to a portfolio, the strategy changes.

I recall Harry Browne's investment strategy for lazy investors, 25% cash, 25% long-term US treasuries, 25% in low fee S&P 500 index fund, 25% gold.

Each month or so buy whichever asset is the least expensive at that time.

Supposedly this generates between 10 and 12% year to year.

Of course this is for 'normal' situations, I don't know if Harry Browne would recommend the same strategy now.

Thank you Harry Browne, you were my first introduction to Libertarianism and you were also of the same mold as Ron Paul, humble and more interested in promoting the message than yourself.

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## psi2941

> Y'all must consider me really dumb.  My entire 401k has been in a long-term treasury fund for over a year now.  
> 
> Being dumb, I only got 30% return on my whole pot in the last 12 months.  
> 
> Maybe if I hang around I'll learn something.
> 
> When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.


what you are saying is the same thing as...
its 2005 or 2006 and your telling everyone to buy homes because your homes on fire.
Then you run into peter schiff, and thinks his crazy because your to up in the moment.

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## Tudo

He's a "professor" because he can't make it in the real world.

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## Tudo

> For the 1% who have enough wealth to make diversification a good strategy and who have enough cash flow to make regular contributions to their investments then I could see having some in T-bills would make more sense than keeping the equivalent amount in cash.
> 
> For the rest of the 99% who don't have enough cash flow to make regular contributions to a portfolio, the strategy changes.
> 
> I recall Harry Browne's investment strategy for lazy investors, 25% cash, 25% long-term US treasuries, 25% in low fee S&P 500 index fund, 25% gold.
> 
> Each month or so buy whichever asset is the least expensive at that time.
> 
> Supposedly this generates between 10 and 12% year to year.
> ...



Harry was the first I read too more than 2 decades ago and Harry is still the ONLY 3rd party candidate to EVER get on the ballot in all 50 states. Here's Harry on firing line fending off 2 jerk off neocons and now of course we can look back and know that Harry was RIGHT
http://www.youtube.com/watch?v=jK01aLsKw7w

And I'm sorry but nobody has better election commercials than Harry Browne:
http://www.youtube.com/watch?v=y-P4pv3288Q

Enjoy

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## matt0611

There's a place in one portfolios for bonds, but the yields right now are below inflation, I'd rather buy gold.

The Federal Reserve bought 61% of all treasuries last year. What more do you need to know?

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## CaptainAmerica

tell your professor he is a morong.

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## Tudo

I had a customer who sold all his coins just before the bear market began in 1981 and bought 30 year t-bills at something like 20%. Now THATS when you buy tbills!

Not now.

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## Tudo

Then again I have another customer who also sold out in 1981 realizing BIG gains and bought baseball cards from the 1800's that he's also made millions on. Neither one of them are professors.

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## smhbbag

If you think:

Inflation is a threat
Interest rates may rise
The stock market will rise in nominal terms
International, institutional money will begin to prefer foreign debt to US debt....

then skip on treasuries.

I think, however,

Interest rates are absolutely not going to go up significantly under any near-term circumstances
The stock market is going to have a major correction downward in the next year or two
Institutional money will prefer US debt even more relative to the debt of Europe and others.

Then treasuries are a great buy.  I made 20% in a month last year during the European debt crisis.  I see more European debt crises coming, so I'm going nowhere.  Treasuries are negatively correlated with the DOW, generally.  I'm confident the DOW will be lower in a year or two, probably by a large amount.  It would be apocalyptic for the Fed to raise interest rates any time in the near future, therefore I don't fear them going up.

I'm sitting pretty, and y'all are laughing.  I made 30% return in the past 12 months, and I expect the next 24 to be even better.  I'm 100% in for treasuries.  Debt-deflation is the name of the game.

I'm not advocating something akin to buying at the housing market high.  I've been renting since '06, despite having 50+% of a home value saved.  We're not at the bottom yet, so I'm holding.  I held during last of the boom years, too.

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## luctor-et-emergo

This is why school is supposed to teach people to question and to stimulate their brains to logically think the situation through. 
School is meant to give support in learning, not stuff ones head full of government authorized 'facts'. 

I used to have an economy teacher in high school who liked to brag about his investments in stocks, then there was some economic downturn and we never heard about his stocks again. I guess it didn't work out for him. This made me aware that 'experts' really can be more likely to make mistakes as they get accustomed to certain situations and often misjudge the risks involved. I'm not in stocks though.

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## The Gold Standard

> If you think:
> 
> Inflation is a threat
> Interest rates may rise
> The stock market will rise in nominal terms
> International, institutional money will begin to prefer foreign debt to US debt....
> 
> then skip on treasuries.
> 
> ...


How much higher do you think treasuries can go? They already yield less than inflation, even using their half assed understated CPI. Do you think the federal government will be borrowing money for free any time soon? That is the only way they can go higher. If you are advocating buying treasuries now then you are advocating something exactly akin to buying at the top of the housing bubble.

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## smhbbag

> How much higher do you think treasuries can go? They already yield less than inflation, even using their half assed understated CPI. Do you think the federal government will be borrowing money for free any time soon? That is the only way they can go higher. If you are advocating buying treasuries now then you are advocating something exactly akin to buying at the top of the housing bubble.


Yes, I think yields can go down even more - a lot more.  Big, institutional money has to go somewhere.  When the stock market goes down, that drives people to treasuries, even at absurd rates.  We're screwed as far as national finances, but Europe is screwed infinitely worse.  So, even as our debt is objectively worse as a buy, objectivity doesn't matter.  Relativity does.  We don't have to outrun the debt bear.  We have to outrun the other guy, so to speak.

And our debt will become more attractive relative to all other options as more global and domestic debt unwinds in a deflationary way.  Raising interest rates would be absolute suicide, and will not occur.  The fed has directly states their low-interest policy will continue for a few more years.  That means I have little to no possibility of losing money.  The upside is tremendous, and the downside is minimal, if even existing (because of the fed guarantee of low rates - which is foolish, but it's what they want)

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## Zippyjuan

Treasury yields are too low to be a good investment- unless you crave maximum security. If you want to keep them until maturity go shorter term. If you are thinking about possibly reselling later, you face enormous risk of higher yields in the future comared to today which means you would have to sell at a lower price than what you paid.  But even most dividend paying stocks have higher yields and if you choose stable companies like say utilities the security is about the same as well. 

  Now if Treasury yields ever get to ten percent, that is the time to stock up on them and go for longer term bonds. Today is not a great time to be buying Treasuries.

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## anaconda

I'm not an investment expert by a long shot, but I think the best returns I've seen lately are in what my girlfriend is doing, which is picking up rehabilitated foreclosures in lower cost, stable areas, with no money down, built in equity, and then renting them out. All done in absentia. Between the massive housing meltdown and continued Fannie Mae rules, the opportunities are astonishing if one has a decent job, a little cash cash saved up, and good credit. A friend I used to work with at a restaurant who is into real estate helped her get into it.

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## Blueskies

Heard this from Hue Hendry (hudge fund manager):

If you believe we will have hyperinflation sometime in the next few years, you should buy long term treasury bonds right now. Why?

Well, for hyperinflation to occur, we would need significant amounts of money printing (QE3, 4, 5) and in order for these programs to happen, we would need much more deflation. Deflation is very good for long term bonds.

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## Zippyjuan

Check out the yield curve. You will see that there is scant room for "massive" moves- rates of return offered to go "down a lot more".  http://www.treasury.gov/resource-cen...spx?data=yield

As of April 2. 2012 you can lock up your money for two years and get a total return of one third of one percent. Stretch it out to three years and you up it to one half of one percent. If you think these rates will fall farther, then buy.  If you think inflation will be lower than that over the time frame of the Treasury you purchase, buy. Otherwise, not a good investment. Meanwhile the energy stock I own (SRE) has an annual yield of 3.82% while a one year Treasury bill will yield me 0.18% (that is zero point one eight percent or less than one fifth of a percent).

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## GeorgiaAvenger

What is the general opinion on TIPS?

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## GeorgiaAvenger

> Don't worry, it'll get confiscated. Hopefully you'll learn then.


They confiscated Gold during the Great Depression.

Which brings to mind, they even confiscated pigs.

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## GeorgiaAvenger

> tell your professor he is a morong.


No, play along and pass the class.

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## Zippyjuan

> What is the general opinion on TIPS?


They offer you some protection on the inflation side but still offer very low rates like other Treasuries. If you are happy with the return offered and intend to hold until maturity they can be OK.  You have to purchase them through a bank or broker- they are no longer offered direct from the Treasury.  A two year TIPS issued April 2nd of this year was yielding 0.34 percent (compared to 0.33% on standard two year notes). http://www.treasurydirect.gov/RI/OFNtebnd If you have to pay any fee to purchase and/or sell them, that will reduce your return. 




> The principal of Treasury Inflation-Protected Securities, also called TIPS, is adjusted according to the Consumer Price Index. With a rise in the index, or inflation, the principal increases. With a fall in the index, or deflation, the principal decreases.
> 
> Interest and Principal
> 
> TIPS pay interest every six months. The interest rate is a fixed rate determined at auction. Though the rate is fixed, interest payments vary because the rate is applied to the adjusted principal.


http://www.treasurydirect.gov/indiv/...tips_rates.htm

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## smhbbag

None of you has even offered a reason why treasuries can't go up.  All it's been is assertion that yields are too low and prices are already high.  That's not an argument.

I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates.  All three of those are guaranteed.  Their opposites would drive treasuries down. None of those are going to happen.

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## Carson

Find a new teacher. 

Or listen closer.





P.S. Sorry about that first crack.

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## Carson

> None of you has even offered a reason why treasuries can't go up.  All it's been is assertion that yields are too low and prices are already high.  That's not an argument.
> 
> I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates.  All three of those are guaranteed.  Their opposites would drive treasuries down. None of those are going to happen.



Treasuries yields would have to at least rise as fast as inflation to show a profit. No?




Last time I looked the central banks had the lending business so gutted the bank was offering me something like .01 APR. Not much down distance to fall there.

When they double the money supply it then takes twice as many dollars to buy the same amount of stock. They make it appear that the value is rising.



Oh, and they have another couple of tricks in their pocket. Not only do they counterfeit the money supply and end up with all of that cash to dictate their way AND stiff you with the bill for it, they also have a way of cutting themselves in on your stuff with their capital gains taxes.

Are these the false profits we were warned about?

P.S. If your still not seeing it maybe if you, for the sake of argument, imagine that the Dow Jones Industrial Average is based on 100 stocks. To see how the price of one stock compares to inflation knock off a couple of zero's off the DOW chart. That should give you somewhere between 5 and 125 to take up and compare to Robert Sahr's chart based on the consumer price index.

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## Seraphim

Treasuries will continue to be highly liquid. Their real return will continue to drop and if you hold them to maturity (mostly the ones over 5 years) your overall purchasing power will drop.

This is an environment of negative real interest rates. It's that simple. 




> None of you has even offered a reason why treasuries can't go up.  All it's been is assertion that yields are too low and prices are already high.  That's not an argument.
> 
> I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates.  All three of those are guaranteed.  Their opposites would drive treasuries down. None of those are going to happen.

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## The Gold Standard

> None of you has even offered a reason why treasuries can't go up.  All it's been is assertion that yields are too low and prices are already high.  That's not an argument.


Because they already yield almost nothing. Are you going to pay the government to borrow your money? If not, then 0% is as high as they go. A $10,000 bond can't go above $10,000 unless you are going to pay them to take your money. What is a 1 year, $10,000 bond going for now, $9,990 or so? Big upside there.

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## smhbbag

> Treasuries yields would have to at least rise as fast as inflation to show a profit. No?


No.  They have to rise at least as fast as inflation to show a profit if I am buying a single treasury, waiting for coupon payments, and holding until maturity.  I'm not.  I can't even buy treasuries directly.  I am 100% in a long-term treasury mutual fund (a few different ones, actually).

That fund fluctuates in value as the big players are willing to pay more or less to get that yield for themselves.  That makes the price of my bonds go up or down in value.  I don't care one bit what the coupon payment is.  I only care about whether the big guys will be more or less willing to buy those coupons for themselves.  

I didn't get 20% return in a month because of coupon payments.  I got it because of the European debt crisis.  Big money bailed on them.  And part of that big money went to treasuries.  That bumped the price of my bonds, and the value of the treasury funds I'm in.  With any more drama in Europe, the same thing will happen.  And Europe will have more drama.

When the stock market corrects significantly within the next year or two (probably sooner), big money will again be seeking a place to go.  That's why treasuries are negatively correlated with the stock indices.  A bet on treasuries is a bet against the stock market - which is exactly how you should be betting now.

All I'm betting is that what has already happened will happen again.  The same factors that made me get 30% last year are all still in place and still true.  

You guys talking about me getting less than inflation or whatever just don't get it.  The coupon I receive doesn't even really merit being part of my calculation.  Big money has to go somewhere, and there is big, big money out there.  When they lose confidence in foreign debt and domestic stocks, they don't have many options, even if they don't even want the treasuries.  They'll still run to them.  And when they do, I make money.

Yesterday a perfect example.  The DOW was down by 200 points on a bad jobs report and some European problems.  My treasury fund went up almost 2% yesterday alone.  Exactly what happened yesterday will continue to happen.

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## Bern

Interesting speculation:  http://www.zerohedge.com/news/if-195...-get-out-dodge

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## matt0611

> No.  They have to rise at least as fast as inflation to show a profit if I am buying a single treasury, waiting for coupon payments, and holding until maturity.  I'm not.  I can't even buy treasuries directly.  I am 100% in a long-term treasury mutual fund (a few different ones, actually).
> 
> That fund fluctuates in value as the big players are willing to pay more or less to get that yield for themselves.  That makes the price of my bonds go up or down in value.  I don't care one bit what the coupon payment is.  I only care about whether the big guys will be more or less willing to buy those coupons for themselves.  
> 
> I didn't get 20% return in a month because of coupon payments.  I got it because of the European debt crisis.  Big money bailed on them.  And part of that big money went to treasuries.  That bumped the price of my bonds, and the value of the treasury funds I'm in.  With any more drama in Europe, the same thing will happen.  And Europe will have more drama.
> 
> When the stock market corrects significantly within the next year or two (probably sooner), big money will again be seeking a place to go.  That's why treasuries are negatively correlated with the stock indices.  A bet on treasuries is a bet against the stock market - which is exactly how you should be betting now.
> 
> All I'm betting is that what has already happened will happen again.  The same factors that made me get 30% last year are all still in place and still true.  
> ...


"Big money" was once in Greek bonds too...

Oh, and 61% of that "big money" going into treasuries last year....came off a printing press.

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## flynn

Nah, you could buy any stocks in the dow jones, it has more chance of beating treasuries in the next 5 years.  Problem is, if people don't buy them, Ben Bernanke would buy the tbills himself with the printing press. That's why people dump their money on real estate everywhere.

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## smhbbag

> Problem is, if people don't buy them, Ben Bernanke would buy the tbills himself with the printing press.


Why is that a problem for the owner of treasuries?  That pushes interest rates down, and bond prices up.

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## flynn

> Why is that a problem for the owner of treasuries?  That pushes interest rates down, and bond prices up.


it's like playing monopoly but somebody claims to be the bank.

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## tremendoustie

> None of you has even offered a reason why treasuries can't go up.  All it's been is assertion that yields are too low and prices are already high.  That's not an argument.
> 
> I've listed the things that always drive treasuries higher: stock market drops, foreign debt crises, and falling interest rates.  All three of those are guaranteed.  Their opposites would drive treasuries down. None of those are going to happen.


You think falling interest rates are "guaranteed"? Ha! You'll be in for a bumpy ride ...

Being owed dollars is just about the worst situation to be in right now, when we're staring high inflation in the face. Being owed dollars by a broke government ...

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## smhbbag

> it's like playing monopoly but somebody claims to be the bank.


So why is that a problem for the owner of treasuries?

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## matt0611

> So why is that a problem for the owner of treasuries?


LOL, you think once inflation officially hits 7,8,9+% anyone is going to want treasuries yielding 2 or 3%?

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## Seraphim

The Fed will ensure short term rates are pushed down lower and lower. Anything under 3 year notes will likely see 1.5-2% yields for a few more years.

The problem for those holding the bonds to maturity, they will lose purchasing power as inflation will NOT hold near or below that.

Matt0611 got it right. Yay for you, you have liquidity that is/will continue to yield negative real returns for the coupon.

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## heavenlyboy34

> Y'all must consider me really dumb.  My entire 401k has been in a long-term treasury fund for over a year now.  
> 
> Being dumb, I only got 30% return on my whole pot in the last 12 months.  
> 
> Maybe if I hang around I'll learn something.
> 
> When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.


Giving the government free money (which is basically what buying bonds is) doesn't strike me as the brightest idea or a good investment.

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## rpwi

> Giving the government free money (which is basically what buying bonds is) doesn't strike me as the brightest idea or a good investment.


Straight up...yes t-bills are awful investments.  But the real reason the big traders buy them is for their resale value.  If you know an over-priced stock is going to be even more over-priced do you buy or sell?  You buy of course.  Because the Federal Reserves uses t-bills as their counter-weight to insert and take away reserves from the banking system much of the value actually derives from the expected demand the Federal Reserve 'open market' will have for t-bills.  If there is volatility or if the market is getting churned, t-bill values go up. If the inter-bank lending rate for reserves is higher than the fed funds rate, then the Fed buys t-bills and their price goes up.

So savvy traders can and do make a lot of money off of over-priced t-bills because they can read where the fed funds rate is going and/or how the demand for bank reserves is heading.

Still...t-bill purchases are incredibly speculative.

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## smhbbag

^Finally, one guy actually gets it.  Normally, they're highly speculative.  I stay in cash or cash equivalents until/unless I know of something I consider nearly a sure thing.  I've never lost money in the market, even though I've only been investing for a decade or so.  I go all in on that one thing when it does arise.  Last year, the stars aligned to my satisfaction on treasuries and I jumped in.

The stars are still aligned.  There is no possible way any of the factors that would hurt treasuries will come true.  Interest rates aren't going anywhere.  Foreign debt is screwed far worse than we are.  The stock market is going down.  If those are true, and they are, then treasuries are virtually no risk.  High inflation cannot happen because of all the debt that is still unwinding.  I don't really feel any risk.

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## LibForestPaul

> Interest rates aren't going anywhere.  Foreign debt is screwed far worse than we are.  The stock market is going down.  If those are true, and they are, then treasuries are virtually no risk.  High inflation cannot happen because of all the debt that is still unwinding.  I don't really feel any risk.


Why do TBTB want these stars aligned as you say?

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## smhbbag

> Why do TBTB want these stars aligned as you say?


Why does it matter to me, as an investor, why they want them aligned?  If they're aligned, I can make money.  I have, and I will.

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## Dforkus

at 2% points of yield I don't see it, or course I don't understand the gold cheerleaders either, I wouldn't exceed a 10 to 20% allocation in gold at this point either.

You can take that 2%, or you could invest solid but boring companies, like Conoco Phillips, Exxon Mobil, Wal Mart, Kraft Foods, McDonalds, Coca Cola, Phillip Morris International, Energy transfer partners.. These all pay more than 2% points in dividend (some more than double), so you are ahead even if they don't appreciate in price, which is unlikely, giving their position's in their respective industries. Even tech stocks like Apple and Intel are paying dividends these days.

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## Dforkus

> All I'm betting is that what has already happened will happen again.  The same factors that made me get 30% last year are all still in place and still true.  
> 
> You guys talking about me getting less than inflation or whatever just don't get it.  The coupon I receive doesn't even really merit being part of my calculation.  Big money has to go somewhere, and there is big, big money out there.  When they lose confidence in foreign debt and domestic stocks, they don't have many options, even if they don't even want the treasuries.  They'll still run to them.  And when they do, I make money.
> 
> Yesterday a perfect example.  The DOW was down by 200 points on a bad jobs report and some European problems.  My treasury fund went up almost 2% yesterday alone.  Exactly what happened yesterday will continue to happen.


Yesterday was a perfect example of one day, as today bears out... Look, if you bet big on treasuries in the last couple years, congrats, it absolutely was a good call (although not as good as certain equities, like oh, for instance AAPL or PM, which have throughly curb stomped treasuries.)

But, remember that famous disclaimer, "Past performance is no guarantee of future results". When you are talking about 10 year yields below 2%, sorry you are just about out of blood to squeeze from that turnip, common sense and math show that trend is not going to continue. If uncle sam is only going to offer up a measely 1.75% on my money, I'd rather invest that money with people who put 5 cents worth of sugar water in a 20oz bottle and sell it for a 1.50 (KO, PEP) or sell cigarettes (PM), or gasoline (XOM, COP), or fried chicken to the chinese (YUM) or folks who are literally making so much money they can't figure out what to do with it all (AAPL), all of which pay me just as much money as uncle sam, and let me own part of a sucessful buisness.

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## heavenlyboy34

> ^Finally, one guy actually gets it.  Normally, they're highly speculative.  I stay in cash or cash equivalents until/unless I know of something I consider nearly a sure thing.  I've never lost money in the market, even though I've only been investing for a decade or so.  I go all in on that one thing when it does arise.  Last year, the stars aligned to my satisfaction on treasuries and I jumped in.
> 
> The stars are still aligned.  There is no possible way any of the factors that would hurt treasuries will come true.  Interest rates aren't going anywhere.  Foreign debt is screwed far worse than we are.  The stock market is going down.  If those are true, and they are, then treasuries are virtually no risk.  High inflation cannot happen because of all the debt that is still unwinding.  I don't really feel any risk.


Okay, a reasoned opinion-but couldn't you get a better return on PM's or real estate and with less risk?

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## smhbbag

> Okay, a reasoned opinion-but couldn't you get a better return on PM's or real estate and with less risk?


The whole reason I'm in treasuries is that I think there are way more deflationary pressures out there than inflationary.  I'm bearish on both gold and real estate.  I don't know a lot about pm's, but as a group I'm bearish on them all, apart from some expanding industrial/technological use for a particular metal.

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## Austrian Econ Disciple

Economics aside, I sure as hell don't want them to have my property and money through taxation, so I surely would never voluntarily fund that damnable institution. The guys who 'invest' in treasury's (aka the State) and facilitate (or at least help to) the current quagmire are pathetic. Ye love wealth more than ye love liberty. You are not my countryman as Sam Adams would say..

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## legion

> Economics aside, I sure as hell don't want them to have my property and money through taxation, so I surely would never voluntarily fund that damnable institution. The guys who 'invest' in treasury's (aka the State) and facilitate (or at least help to) the current quagmire are pathetic. Ye love wealth more than ye love liberty. You are not my countryman as Sam Adams would say..


I think the social argument is the reason most people here don't like treasury bonds. You don't like treasury bonds because of some social belief, not because it's a bad investment.

Investing to make a point about social justice is a poor strategy.

I think if you looked into it there is much more coercion that goes into mining an ounce of gold than an equal amount of growing government, which the people are demanding grow.

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## Bern

Janet Yellen hinting that ZIRP may be extended through 2015:

http://www.zerohedge.com/news/bernan...ough-late-2015

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## matt0611

> I think the social argument is the reason most people here don't like treasury bonds. You don't like treasury bonds because of some social belief, not because it's a bad investment.
> 
> Investing to make a point about social justice is a poor strategy.
> 
> I think if you looked into it there is much more coercion that goes into mining an ounce of gold than an equal amount of growing government, which the people are demanding grow.


I don't like treasuries because they are bad investments, can you make money on them? Yeah, sure, obviously. You can make money speculating on things if you know what you're doing. I much rather hold something else in the long term though.

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## The Gold Standard

Treasuries can be a good trade if you buy them at the right time and sell them while people still want them. They are a terrible long term investment, especially right now.

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## KingRobbStark

> I remember my ECON professor gave me (literally gave me) Atlas Shrugged, saying, "I ordered this and I don't want to read it. You can have it."
> 
> She went to MIT. 
> 
> My advice would be to just do your work and ignore your professors stupid ass advice. Don't fight w/ your professor, won't get you anywhere.
> 
> There isn't any reason to debate them in class because the market will prove us correct, everytime.
> 
> You 1 v Professor 0


Don't dis MIT nigga.

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## Zippyjuan

Let's take a hypothetical example to see just how much money you could make if you buy a Treasury and want to later sell it for profit if interest rates go down further. 

Say I am going to buy a one year note for $100.  The current yield on such a note is 0.18% so it will cost me $99.82 to purchase (ignoring costs).  Now say interest rates fell by 50% and the yield is 0.09%.  That bond costs $99.91 so I could sell my bond for up to that amount.  If I was to sell my bond I could make a massive nine cents for every $100 I have invested if interest rates fell by that 50% from where they are. $10,000 in bonds?  I could earn a whopping nine dollars. If I had a stock with a three percent dividend yield I would get $300 on a $10,000 investment- and that ignores any changed in the stock price which could also go up (or down) and add (or deduct) from my return. (Again ignoring any transaction costs or taxes on returns). 

Yes, you can make money- just not  very much at current interest rates- either by holding or hoping yields fall even further and then reselling them. If there are ANY transaction costs you returns are very quickly eliminated.

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## smhbbag

Falling interest rates aren't the only thing that increases bond prices.  I've listed many others.

Interest rates were nearly in the same place last year, and my returns are substantial since then.

Your argument boils down to 'prices are super-high and rates are super-low, therefore there is no return to be found.'  We're not living in an ordinary time.  Normally, with rates this low, our debt would become less attractive to buy and the stock market's near future may be looking brighter.  This isn't normal.  The stock market is going to go down, and our debt will become more attractive, not less, relative to other investment options for the big guys.

Again, I've given reasons.  Just about every other argument here is just "well, bond prices are really high, so they can't go up," which is no argument at all.

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## Zippyjuan

If I buy a $100 bond for $99.82(which is what you are paying if the yield is 0.18%), how much higher can I expect to be able to sell it for?  Will somebody be willing to pay more than $100 which will be its full value at maturity? Not likely. If I keep it, I earn eighteen cents.  

Your fund can do several things to try to increase their returns. They may have long term bonds and holding them until maturity- those will be generating higher rates of return than treasuries being sold today. They can try to use leverage (borrowing) to try to increase yields but if things turn on them they can also quickly lose returns. They may also have other bonds besides US Treasuries such as munincipal or ever corporate bonds.




> My entire 401k has been in a long-term treasury fund for over a year now. 
> 
>  I only got 30% return on my whole pot in the last 12 months. 
> 
> When the stock market corrects by a few thousand points some time in the next year or two, and gold is down, I'll really need some help understanding why I should abandon my booming treasuries.


Any chance you could share the name of that fund you said gained 30% in just 12 months? I have never heard of that sort of return on Treasuries. That is a massive return and would be nice to get in on! Thanks.

But yeah- if you can get consistant 30% returns, stock up!

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## The Gold Standard

> Again, I've given reasons.  Just about every other argument here is just "well, bond prices are really high, so they can't go up," which is no argument at all.


You do realize that the yield is the ONLY thing that determines bond prices, right? To use Zippy's example, if a $100 bond yields 0.18%, then it's price today is $99.82. If the yield goes up, then the price comes down. Say the yield is 1%, then the price would be $99.00. If the yield goes down, the price goes up. If the yield drops to 0.01% then the price will be $99.99. If people want treasuries so bad that they will lend the government money for free, then bonds would yield 0% and the price would be $100. The ONLY way they can go higher than that is if people will pay the government to borrow their money, if you want to give them $101 for a $100 bond, then that is up to you, but you will be the only one doing it.

There are factors that can cause people to demand treasuries and increase their price. But what happens when these events happen? The yield falls, therefore treasuries go higher. The yield will never fall below 0%, so there is an absolute ceiling on treasuries, which we have just about reached. People will bury dollar bills in their back yard before they pay the government to borrow their money.

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## LibForestPaul

> Why does it matter to me, as an investor, why they want them aligned?  If they're aligned, I can make money.  I have, and I will.


Well, it is then "faith" that you believe some entity will not alter these alignments. I was hoping you might shed some insight on who gains or what is gained from this alignment, (deflation?) Not that it is incorrect that these events have happened and will happen again, but why would they be _allowed_ to happen?

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## enter`name`here

I do not consider myself a PM fanatic like some on these boards, Bonds are an integral part of a well balanced portfolio. Having said that I feel that bonds are very unattractive at these levels and would only buy some if I really wanted to diversify.

I would like to reiterate Zippy's call for the name of the fund that is gaining 30% in what is considered to be a risk free asset.  Does anyone know where I could locate a good chart of 30 years treasury _prices_? We could then give him the benefit of the doubt and assume he bought at the lowest point in the past 12 months and sold at the highest and calculate the highest possible return.

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## Zippyjuan

Interesting chart- 30 year Treasuries have pretty much been declining (some ups and downs but long term down) since the early 1980's when they peaked at just over 15%. http://finance.yahoo.com/echarts?s=%5ETYX+Interactive#symbol=^tyx;range=my;  compare=;indicator=volume;charttype=area;crosshair  =on;ohlcvalues=0;logscale=off;source=undefined; (If the chart only shows a shorter time period, click on "max" below the graph). The last offered double digit returns in 1985. (interactive flash so it won't copy to share directly with you here so you will have to click the link). Currently 3.2% annual yields. 

US News list of top performing US Treasury Bond funds. Most are negative in returns right now year to date. http://money.usnews.com/funds/etfs/r...treasury-funds  Highest YTD return is 5.7% and lowest is negative 13.8%.

In advertising returns some funds try to pick the time period where they aquired their highest returns which does not necessarily reflect actual returns.

A list from 2011 (October):
http://wallstreetpit.com/85101-top-5...funds-oct-2011



> *Top 5 Highest Yielding Government Bond Mutual Funds (Oct. 2011)*
> 
> Conservative investors prefer debt instruments not only because they safeguard the capital invested but also for the regular income flows they provide. Bonds bring a great deal of stability to an equity-heavy portfolio while providing dividends more frequently than individual bonds. U.S government bonds funds usually invest in Treasury bills, notes and securities issued by government agencies. They are considered to be the safest in the bond fund category and are ideal options for the risk-averse investor.
> 
> Below we will share with you the 5 highest yielding Zacks #1 ranked government bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.
> 
> 
> 
> Mutual Fund      SEC Yield
> ...

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## Zippyjuan

I stand corrected- I found a little more info which may actually support smhbbag on this. Article from SF Gate news December 2011:
http://www.sfgate.com/cgi-bin/articl...BUC71MFCDF.DTL




> Even though the United States lost one of its triple-A credit ratings in August, mutual funds that hold *long-term U.S. Treasury bonds* are almost certain to end 2011 as the year's top mutual fund category, by a wide margin.
> 
> *With an average return of 32 percent through Tuesday, they have trounced every other type of U.S. or international stock and bond fund, according to Morningstar data*.





> All of these forces combined caused the yield on the 30-year Treasury to fall from 4.33 percent at the start of the year to 2.97 percent today, with most of the drop coming in the past four months.
> 
> Since the start of the year, the price of the 30-year bond has risen about 29 percent, which if you add in roughly 3 percent in yield gets you a total return of 32 percent, says Carl Kaufman, manager of the Osterweis Strategic income fund.
> 
> Unfortunately, few ordinary investors benefited from the surge in 30-year bonds because it is a relatively small asset class dominated by big players including the Fed, hedge funds trying to get ahead of the Fed, pension funds and insurance companies.


But it also adds:



> *Nobody thinks long-term bonds will repeat this year's performance in 2012. "Mathematically speaking, it is not replicable, unless you think rates can go below zero," Kaufman says.*
> 
> The bigger risk is that investors will move away from longer-term Treasurys next year, causing their prices to fall and yields to rise. *The longer the term of the bond, the bigger the potential price drop if this happens*.
> 
> Kaufman says if he owned 30-year Treasurys, "I would certainly be taking some money off the table. They are priced to perfection, I think."


The underlined portion is what I was trying to point out.

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