My economics teacher: Buy treasury bonds!

[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.

 

[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.

 

[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.

 

[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?

 

[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.

 

[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..

 

[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.

 

[pmbug]

Janet Yellen hinting that ZIRP may be extended through 2015:

http://www.zerohedge.com/news/bernankes-right-hand-dove-janet-yellen-hints-zirp-through-late-2015

 

[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.

 

[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.

 

[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.

 

[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.

 

[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.

 

[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!

 

[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.

 

[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?

 

[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.

 

[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/rankings/us-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-highest-yielding-government-bond-mutual-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

JP Morgan Real Return 4.49%

Vanguard Long Term Treasury Investor 4.09%

Fidelity Spartan Long Term Treasury Bond Index 4.05%

T. Rowe Price US Treasury Long Term 3.77%

Dreyfus US Tresury Long Term 3.15%

 

[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/article.cgi?f=/c/a/2011/12/21/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.