30 Year Treasury Rate

[ScaredtoQuit]

Some time this year (maybe as late as Dec) I will ER. When I do, I will take my defined benefit contribution pension in the form of a lump sum. The lump sum is currently based on the 30 year Treasury Rate so I've been watching it like a hawk. The lower the rate, the higher my lump sum will be. e.g. If the rate is 4.72, my lump sum is equal to 190 times my monthly annuity computation, at 4.95% it's 185 times, at 5.2% 180 times, and so forth.

Just my luck. I'm coming down the homestretch and the durn thing has been going up almost every single day this month!!

I know much of this is a result of the Chinese Government deciding to diversify their holdings into other currencies besides the dollar, thereby eliminating the "artificial" demand that has been depressing the rates of U.S. long term debt securities. A friend of mine claims that this policy is manifesting itself in the form of the Chinese (and the Indonesians too) dumping treasury bonds in the market. He also claims that once the dumping is completed, rates will decline because all the other indicators point to a lower rate.

Does this seem reasonable to anyone? Does anyone have a feel for when the dumping would be completed? Any other insights? The decision of which month I retire in could have a very big impact on my nestegg.

 

[Nords]

A friend of mine claims that this policy is manifesting itself in the form of the Chinese (and the Indonesians too) dumping treasury bonds in the market. He also claims that once the dumping is completed, rates will decline because all the other indicators point to a lower rate.
Does this seem reasonable to anyone? Does anyone have a feel for when the dumping would be completed? Any other insights? The decision of which month I retire in could have a very big impact on my nestegg.

Scared, we've had plenty of posters on this board who were in your situation. For whatever reason they hesitated to ER, now that they're in ER they've almost all looked back on their concerns and wondered what the heck they were worried about.

You seem to be elevating the ER worry to an art form worthy of the Louvre. But that's just my opinion and you have to work things out for yourself.

Your logic about the Chinese is correct although we don't know the timing. The Chinese will dump Treasuries until the yield goes back up, and then someone will probably start a buying stampede again. Unless the euro takes off, or the Saudis get frisky, or there's another terrorist attack. Nothing artificial about this demand-- everyone in the world is selling us stuff that we're buying with cheap dollars. If they want their profits to stop eroding as the dollar drops then they have to buy Treasuries or other country's paper. If you want more of a perspective on the mechanics of the trade imbalance, you could read Andy Kessler's "How We Got Here" or "Running Money". He calls it "We think, they sweat", and it's not as bad as everyone seems to think.

But I don't think the Chinese are going to tell anyone when they'll be done dumping.

If your ER is riding on such a sensitive issue as Chinese Treasury dumping making a difference of a few percent in your lump sum, then perhaps your ER plans are pushing the envelope too hard. You may need to take another look at your expenses or your asset allocation or just pile up a bigger cushion against these types of shocks.

But I think that a decade from now you'll look back on this lump-sum question and shake your head wondering what the heck you were worrying about.

 

[ScaredtoQuit]

Thanks for the encouragement. You are probably right on all accounts. At the moment, I am leaning toward the option of getting another job that is less stressful for a few more years. Barring a 30% run in stocks this year, I think know I will need a larger margin of safety than I currently have projected.

Thanks also for the links! This Board is absolutely terrific!!

 

[brewer12345]

Chinese Treasury dumping

Not quite as good as "piglet sodomizer," but getting close...

 

[Nords]

Not quite as good as "piglet sodomizer," but getting close...

Well, I also heard that they were going to keep dumping Treasuries until they'd managed to corner the world's supply of pennies...